Two big unknowns about the state budget agreement

Just a few minutes ago, Gov. Ed Rendell held a press conference to outline the agreement between legislative leaders on the state budget. The deal, which was hammered out over the past few days, would authorize about $28.1 billion in state spending. If major portions of the agreement actually pass tomorrow, it will be the first time in eight years that the budget has been on time.

So is it time to rejoice? Not quite. It seems to us that the budget is based on two big contingencies.

First, it assumes that lawmakers will find some common ground on the severance tax. Right now, there is an agreement in principle that companies should pay something for the privilege of mining natural gas in the Marcellus Shale. However, lawmakers are fuzzy on exactly how much the levy should be and how it should be divided between the state and local governments. That promises to be a contentious debate and it's entirely possible that legislators won't be able to find a compromise that can pass the State House.

An even bigger issue is that this budget assumes that the federal government will pass an extension of increased reimbursements for Medicaid, known as FMAP. If that doesn't happen-- and it's quite possible that it won't-- the state will find itself with an additional $850 million hole. That would basically blow up the entire budget and force lawmakers to start the entire process over again. It will definitely mean big cuts in the Department of Public Welfare, but the impact could be spread across many state departments. Gov. Rendell estimates that he'll have to layoff 20,000 employees if the federal money doesn't materialize.

So, do we really have a state budget? Only time will tell.....

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