Pennsylvania tax collection up but deficit still looms

HARRISBURG - Unemployment is down and state tax collections are up. That's the good news.

The bad news is that the state still faces a budget deficit of between $4 billion and $5 billion when the new fiscal year begins on July 1.

At a Thursday news briefing in the Capitol, Gov. Rendell said Pennsylvania was outpacing other states in creating jobs, which helped drive down the unemployment rate to 8.6 percent in November, a drop of 0.2 percent over the previous month.

The national jobless rate in November was 9.8 percent.

Among similar, older manufacturing states, Michigan recorded unemployment of 12.8 percent in October; Ohio, where unemployment crested above 10 percent, only recently recorded a drop into single digits.

Rendell credited his administration's economic-development efforts - bolstered by heavy borrowing - as the reason Pennsylvania did not slip as badly as other older "rust belt" states.

"It's no accident," Rendell said at his last official budget briefing before leaving office on Jan. 18. "We've made significant investment through significant borrowing."

Rendell has come under fire from Republicans, and even some elected Democrats, most recently Auditor General Jack Wagner and Treasurer Rob McCord, who together forced the reduction of the governor's final $1 billion bond proposal to $650 million.

Rendell countered that despite the borrowing, the state's bond rating had improved since he took office in 2003.

Overall, state tax collections are running slightly above projections, with the exception of the personal-income tax, which is stagnant, he said.

As of Nov. 30, the state had collected $9.2 billion in revenue in the current fiscal year, or 0.2 percent above estimates.

Rendell said that although the budget news was "decent," it did not negate the fact that unemployment benefits for 140,000 Pennsylvanians will be cut off at the end of the month if Congress fails to pass a federal tax package, which includes an extension of jobless aid.

"None of us is standing here to say the Pennsylvania economy is in good shape," Rendell said, flanked by his budget and labor secretaries. "There are still too many people hurting, too many people looking for work."

Rendell said that his successor, Gov.-elect Tom Corbett, and the legislature faced significant budget challenges.

At a time when Rendell's budget experts predict a $4 billion-plus deficit, the state will lose $2 billion in stimulus funding and have increases in mandated costs such as Medicaid, pensions, and prisons.

In addition, higher-than-expected demand for Medicaid services could leave a shortfall of more than $60 million in this year's $28 billion budget.

Rendell said that if the legislature had approved a tax on Marcellus Shale natural-gas extraction, the state could have taken in an extra $70 million.

Corbett has vowed to balance next year's budget without a tax increase. He is scheduled to make his first budget address in March.