Could there finally be light at the end of the state budget tunnel? That's the question we're asking since Gov. Ed Rendell announced that the projected budget deficit for the 2010-2011 fiscal year is only $53 million. That might sound like a lot of red ink, but it's nothing compared to the multibillion dollar gaps that have plagued the state for the past couple of years.
The bulk of the good news comes from data on tax collections. According to the Department of Revenue, taxes are coming in about $14 million higher than originally estimated. The biggest increase is in corporate taxes, which are nearly 8 percent higher than was projected at the beginning of the year. The state sales tax is also bringing in about 2 percent more than expected.
This is a positive development and not just because it means state government could have more money. It's also a sign that the sluggish economy might finally be showing signs of real growth. The increase in corporate taxes means that companies are starting to become more profitable and that could lead to more hiring in the near future. And the increase in sales taxes means that people are finally spending again.
However, there is also some bad news. The personal income tax remains relatively flat, which means that people's incomes are still stagnant. The income tax is one of the biggest sources of revenue for state government, so the budget picture won't substantially improve until that starts to increase. And since sagging tax revenue is the biggest driver of the past few years of budget deficits, that's an incredibly important part of the state's overall recovery. And the fact that there is a mid-year deficit means that Rendell will likely have to take some kind of action to fill the hole.