Note on Budget from BPC

from the Pennsylvania Budget and Policy Center:

Governor Ed Rendell and legislative leaders announced today they had reached agreement on a 2010-11 budget of $28.05 billion. The budget is a 0.6% overall increase from the current year, including a $250 million increase for basic education; however, it makes cuts to several other areas, including other education programs, libraries, state parks and environmental protection.

The agreement also requires the Legislature to enact a severance tax on natural gas production by the fall, which will go into effect in January 2011. The plan does not place an excise tax on cigars and smokeless tobacco, close corporate tax loopholes or end the sales tax vendor discount, as earlier proposed.

Sharon Ward, Director of the Pennsylvania Budget and Policy Center, issued the following statement on the budget agreement:

"This budget agreement does not adequately address the fiscal challenges facing Pennsylvania. We are disappointed by the Legislature's refusal to enact an excise tax on cigars and smokeless tobacco and to close other tax loopholes. These measures have public support and would have prevented some of the cuts to libraries, educational programs, state parks and environmental protection.

"An excise tax on cigars and smokeless tobacco is long overdue in Pennsylvania. Nearly every state taxes these harmful products, including major tobacco-producing states like North Carolina, Kentucky and Tennessee. Why doesn't Pennsylvania?

"This budget leaves recurring revenue sources - like the tobacco taxes - on the table and relies too heavily on one-time funds. These include $850 million in extended FMAP funds that are far from certain. By relying on FMAP and skipping other recurring revenue, this budget puts critical services like health care and education in jeopardy.

"Despite our concerns about many aspects of this budget, we are pleased to see it set the stage for a severance tax on natural gas production by the start of 2011. There are still many details to work out, including the actual structure of the tax, the rate and the distribution of funds. We are very concerned about efforts by industry lobbyists to add exemptions to the severance tax. As we noted last week, two-thirds of the gas extracted from a typical Marcellus Shale well would be exempted from the tax with exemptions supported by the industry. Lawmakers should not give in to industry demands for tax breaks. The rich gas reserves in the Marcellus Shale and its proximity to lucrative gas markets in the Northeast are already attracting oil and gas producers like ExxonMobil, Shell and Range Resources, which recognize the shale's profit potential."