Pennsylvania cuts another $128 million from spending

By Jon Hurdle

HARRISBURG, Pa. (Reuters) - Pennsylvania will cut another $128 million in spending from its fiscal 2009 budget in an effort to offset plunging revenues in the recession, and faces deeper cuts in next year's budget, Gov. Ed Rendell said on Wednesday.

The new cuts, to be made across all departments of state government, are in addition to $311 million in cuts already made by the administration in a bid to meet the legal requirement to balance the state budget.

The latest cuts include a pay freeze for 13,600 non-union state workers who were scheduled to receive an increase of 2.25 percent, averaging $1,800 per worker, in January 2009. The wage freeze will save $14.3 million this fiscal year.

Rendell, speaking at a Capitol news conference, said he had also asked 51 executive-level staff to forego cost-of-living increases, and said he would personally be giving back $2,781 to the state, representing the net value of a cost of living increase on his own $170,000 salary.

Rendell declined to specify which areas of state government would be cut but said details would be provided at the mid-year review on Dec. 9 of the $28.3 billion general fund budget.

General fund revenues for the first four months of the current fiscal year were 6.8 percent, or $658 million, below estimates, the state said on Dec. 1. Sales tax, corporation tax and personal income tax receipts all came in below expectations by the end of November.

To help fill a budget gap of about $250 million in the current year, Rendell said he expects to get emergency funding from the new administration which has said it is willing to help states maintain services in the economic downturn.

"There is no question in my mind that we will get funding relief," said Rendell who led a meeting of 48 governors with President-elect Barack Obama in Philadelphia on Tuesday to discuss the effects of the recession on state governments, 41 of which now face budget deficits.

Further measures to fill the shortfall could include dipping into the state's $750 million rainy-day fund and using $190 million in royalties paid by energy companies drilling for natural gas on state land, Rendell said.

The Democratic governor warned that cuts in the fiscal 2010 budget, to be introduced in February 2009, will be deeper than in the current year, but said he hoped to balance the new budget without any broad-based tax hikes. The state faces a deficit of $1 billion to $2 billion in fiscal 2010, Rendell has said.

He repeated his goal to put a new tax on smokeless tobacco products, and said Pennsylvania is the only state in the U.S. without such a tax. He also said that six non-resident oil companies that sell gasoline in the state are not paying enough tax, and should be considered for a tax hike.

"Next year's going to be worse because we have to include this year's gap plus next year's," he said.