Pa. gov to pursue shale tax, school-funding hike

AP News
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Posted: Dec 24, 2009 8:34 AM

Pennsylvania Gov. Ed Rendell said he will press for another increase in public school funding and a tax on natural gas production when he presents his last state budget in February.

But the Democrat would not reveal how or whether he will use his final year in office to try to head off a fiscal "tsunami" that he warns is headed toward Pennsylvania after his term ends.

"We'll see," he said at a news conference Wednesday during which he spoke about his administration's work in 2009 and answered reporters' questions.

Next year will be his eighth and final year in office because the state constitution limits governors to two consecutive four-year terms.

Public school funding is a signature issue for Rendell. Even when cutting spending this year to help fill a recession-driven, multibillion-dollar revenue shortfall, he still pushed a $300 million, or 5.7 percent, increase for public school instruction through the Legislature, a feat he calls unparalleled among states last year.

Last February, he proposed a 5 percent tax on natural gas production to help prop up the state's ailing finances and capitalize on the industry's rush to exploit the Marcellus Shale formation that underlies much of northern and western Pennsylvania.

The idea faced staunch opposition in the GOP-controlled Senate and from the drilling industry, and Rendell withdrew it from consideration in August.

On Wednesday, he said he is relying on a group of industry members and administration aides to develop a compromise plan to tap the industry for revenue. Pennsylvania is the largest gas-producing state that does not assess the extraction of the fuel.

He also repeated his warning that, if no action is taken, Pennsylvania will face a $4.5 billion to $5.5 billion revenue gap in 2012. That forecast, he said, is based on an anticipated increase in public employee pension obligations and the disappearance of temporary federal stimulus dollars being distributed to help states supplement lagging tax collections during the recession.

However, he suggested that, had the Legislature approved the proposal he made last June for a three-year, 16-percent increase in the personal income tax, Pennsylvania would be in a much better position. His proposal originally was designed to help resolve the immediate shortfall, but fell flat in the Legislature, despite support from Democratic leaders.

He would not say if he would revive the tax proposal.

"I might," he said, and then joked: "Of course, it really had a lot of legs this year."

A spokeswoman for House Appropriations Committee Chairman Dwight Evans, D-Philadelphia, put the potential shortfall in 2012 at $10 billion and said the state has nowhere else to turn but a tax increase.

Senate Appropriations Committee Chairman Jake Corman, R-Centre, said it would be difficult to project a shortfall figure because expectations of the state's pension obligation can change.

In addition, he said, the Senate GOP is seeking to assemble a pension plan that could include measures such as a pension obligation bond or shifting the state retirement system to a defined contribution plan _ for example, a 401(k) plan _ instead of the current defined benefit plan, which pays a retiree a set amount each month.

In any case, the longer a solution is delayed, the more difficult it is to solve, Corman said.

"We're going to have to make a tough decision," he said, noting the potential for employee union and Democratic opposition to pension plan changes. "You're not going to get these revenues out of the sky, and everybody's going to have to give up something."