State budget battle looms

The freshman Republican from York County believes a protracted state budget dispute -- forged in a battle with Democratic Gov. Ed Rendell over higher taxes -- could result in no paychecks for state employees, including lawmakers, and no money for state programs.

Perry is willing to hold out as long as it takes to approve a budget without higher taxes, and one that curbs state spending.

"For the most part, people think they pay enough in taxes and government is getting enough of their money," he said.

The buzz at the state Capitol is that Pennsylvania might face the most contentious budget year since 1991, when legislators hiked state taxes by almost $3 billion under then-Gov. Robert P. Casey, a Democrat.

Increasingly, lawmakers in both parties say they won't support Rendell's seven proposed state taxes -- totaling $2.5 billion -- affecting consumers, employers, waste haulers, tobacco users and oil companies. That doesn't count higher taxes that could be levied for highways and bridges if Rendell's proposed long-term lease of the Pennsylvania Turnpike also sputters.

Under the state Constitution, lawmakers must approve a budget by June 30. But in 2003, Rendell's first year in office, they didn't resolve the budget until December. Senate Republican leaders -- then led by former Senate President Pro Tempore Robert Jubelirer, of Altoona -- caved to Rendell's wishes and approved a 10 percent hike in the state income tax and increased cell phone taxes.

But new leaders are responding differently.

"I wish this governor would cut spending the way he wants to cut family budgets," said Senate President Pro Tempore Joseph Scarnati, R-Jefferson County.

On Wednesday, as part of an effort to find more money without raising taxes, the Senate Republican Policy Committee discussed proposals to sell or lease state liquor stores. Geoffrey Underwood, a senior policy fellow with the Reason Foundation, a conservative think tank, told lawmakers selling the wholesale and retail liquor operations could reap $1.7 billion.

Republican Sen. Rob Wonderling, of Montgomery County, said he asked for the hearing because the state faces a deficit of $1 billion or more. Others say it could be as high as $2 billion.

With new Senate GOP leaders and 55 freshmen members of the House and Senate -- many of them more conservative than their predecessors -- political insiders see the potential for a long holdout against tax increases.

"The expectations across the political community are widespread that a long, hot summer of budget impasse beckons," said political analyst Mike Young, a former Penn State professor.

"I will hold out as long as it takes to do the right thing," said freshman Sen. John Eichelberger, an Altoona Republican who defeated Jubelirer. "I have been telling the people of my district that we could have a long summer, maybe even up to the fall without a budget."

Even Democrats are balking at Rendell's suggested tax hikes.

"The state cannot solve every problem for every person," said Rep. Nick Kotik, D-Robinson. "I just don't think at this point you can justify all these taxes."

State officials should have put money in the so-called Rainy Day Fund -- a state savings account -- last year, Kotik said.

Kotik might consider a sales tax increase if every cent went to offset reduced property taxes. Under Rendell's proposal, about one-third of a 1 percent increase in the sales tax would go to property tax reduction. The rest would help pay for state programs.

Rendell shows no intention of backing off.

"The governor introduced a reasonable and responsible budget that addresses many of the challenges Pennsylvania faces," spokesman Chuck Ardo said. "Doing nothing about transportation, as some legislators suggest, is not an option.

"They can and should finish their work in a timely manner."

House Minority Leader Sam Smith, R-Punxsutawney, said taxing oil profits for transit funding is dead.

Rendell's spending is "out of control," said Senate Majority Whip Jane Orie, R-McCandless. Orie said the Senate is prepared to approve a budget in June with no tax increases and little or no increased spending. She predicted bipartisan support would emerge for "a fiscally responsible budget."

State spending increased 9 percent in the 2006-07 budget, 7 percent the year before and 9.8 percent in 2004-05, according to the Senate Appropriations Committee. Those increases took place under a GOP-controlled Legislature. The state's debt has increased 6 percent annually over the past five years.

"In actuality, we have been spending money almost triple the rate of inflation," said Sen. Gibson Armstrong, R-Lancaster County, who became Appropriations chairman in January.

"I haven't run into one person -- House or Senate, Republican or Democrat -- even a little bit warm to the sales tax," Armstrong said.

Insiders' predictions of a long budget dispute are based on the notion that Rendell won't hesitate to veto budgets that don't include policy initiatives he seeks, such as expanded health care.

In 2003, Rendell vetoed education funding after signing a bare-bones budget. The dispute lasted until near Christmas over taxes, education funding and money for other state programs. But a core budget was in place for most programs, and state employees didn't miss paychecks.

It wasn't the first time lawmakers have missed the budget deadline.

In 1991, the Legislature didn't agree on the budget and taxes until mid-August -- 35 days after deadline. There was a $1 billion deficit, but it took almost $2 billion more in increased spending to garner the votes needed to support higher taxes. More than 100,000 employees went without paychecks for about a month.

The wild card this year, Orie said, is "what will happen over in the House," where Democrats control the chamber by one vote.

"I think there's a growing consensus in our (Republican) caucus (that) we have to hold the line on spending," said House Minority Policy Chairman Mike Turzai, of Bradford Woods. "At a minimum, that means beneath the rate of inflation. There certainly is no appetite for new or increased taxes."

Democrats haven't introduced bills accommodating any of Rendell's proposed tax hikes, Turzai noted.

Turzai ordered posters -- "I Am A Budget Hawk 2007-2008" -- with an illustrated hawk.

Rep. Scott Hutchinson, an Oil City Republican, hung one of the signs in his office window in the Capitol's East Wing.

"I think we've grown too big, too fast, for too long," Hutchinson said. "At some point you've got to put on the brakes."

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