Will report of growing Pa. budget deficit revive the fight over new taxes?

3 x 2 gov tom wolfe
The Republican-led General Assembly has resisted calls from Democratic Gov. Tom Wolf to increase the state's sales and personal income taxes.

HARRISBURG - Pennsylvania could be on the path to a ballooning, billion-dollar budget deficit, state officials said Tuesday, potentially reviving a recurring political showdown over new taxes or spending cuts.

A report released by the nonpartisan Independent Fiscal Office said that the state was on track to fall more than $500 million short of what it needs to make it through this fiscal year, and that the deficit could grow to $1.7 billion in the next fiscal year if current policies remain in place.

Among the reasons: an aging population, rising costs, and a slowing revenue stream.

"Things haven't changed too much over the last few years," fiscal office director Matthew Knittel said of the findings. "There is a long-term fundamental imbalance, and that's driven by many factors. ... But fundamentally, it's also the fact that our revenue sources, based on the tax base, they do not grow fast enough to meet the expenditure needs."

The outlook drew mixed reactions in Harrisburg.

Republican leaders in the legislature acknowledged a challenge ahead but downplayed the notion of a looming crisis. "We will manage it responsibly," said House Speaker Mike Turzai (R., Allegheny).

A spokesman for Gov. Wolf did not quibble with the projections, but noted the current fiscal year is young. It ends in June.

Still, spokesman Mark Nicastre said, the administration is concerned that revenue collections have not been keeping pace with estimates. Wolf "has remained steadfast in his belief that Harrisburg has to make the difficult decisions to put its fiscal house in order, and he looks forward to working with the legislature to do so," Nicastre said.

The fiscal office's projections are based on current state and federal policies, and assume there will not be a recession during the next five years.

Its report cited rising state costs for pensions, debt, corrections and human services programs. In this fiscal year alone, the Department of Human Services could require $388 million more than has been budgeted, according to its projections.

Nicastre said the governor's office is working with the department to reduce costs.

But how the Democratic governor and Republican-controlled House and Senate will fill any budget gaps remains to be seen. Their seemingly annual battle over shortfalls led to a historic budget impasse two years ago, one that rippled to school districts and social-service programs statewide.

Contending the state needs long-term structural fixes, Wolf has advocated for broad-based hikes in the state sales or income taxes. In February, the governor said the state would need to raise at least one of those taxes in order to balance the budget.

The General Assembly has resisted those calls. And this year, legislators ultimately agreed to pay for the increase in this year's spending plan through taxes on cigarettes and digital downloads and changes to laws on wine sales - along with a plan to change gambling law, which they have not yet done.

Both Turzai and House Majority Leader Dave Reed (R., Indiana) said the chamber's Republicans, who strengthened their majority in last week's election, will focus first on bringing spending in line with incoming revenues.

After that, said Reed, there can be a discussion about new revenue - but he signaled strongly that there is little appetite to increase sales or income taxes.

"We've been pretty clear with the administration in that regard," he said. "I don't think, given the results of the past election, that folks are all that interested in a multibillion tax increase."

Asked what new sources of revenue House Republicans could accept, Reed talked about expanding gambling in the state and further privatizing the sale of wine and liquor. Turzai said leasing the wholesale operations of the state-run Liquor Control Board would bring in "significant revenue" at least for the decade.

"It's one of the ideas on the table," he said.

Senate Minority Leader Jay Costa (D., Allegheny) said budget writers will need to look at spending cuts and also at the possibility of bringing in more revenue.

"We've been saying all along that the revenue package that was put together was not going to cover what we needed to cover going forward," he said. "We need to take a look at this crisis and figure out the best way - and a bipartisan way - to move forward to close that gap."

klangley@post-gazette.com 717-787-2141 @karen_langley

Staff writer Angela Couloumbis contributed to this article.