Balanced Budget Still Within Reach Despite Weak March Revenues

Administration Will Await Major April Collections for Clearer Indication of Trend

HARRISBURG, Pa., March 31 /PRNewswire-USNewswire/ -- Despite disappointing revenue collections in March, Pennsylvania remains in position to achieve a balanced budget by the end of the 2009-10 fiscal year, pending tax data for April, Governor Edward G. Rendell said today.

"With the significant revenue month of April just ahead, it is important to wait and see how the major tax category collections come in before we make assumptions about end-of-year revenues," the Governor said. "At this point it would be premature to deviate from the plan that I have already presented to balance the budget.

"We are still in better financial shape than any other large state in the nation, but rest assured that as we have done throughout these difficult economic times, we are prepared to make the necessary cuts and adjustments to balance the budget," he added.

Through careful planning by the administration and the legislature, plus recent unanticipated help from the federal government, Pennsylvania will be able to deal with the year-to-date budget shortfall, which could reach $750 million when March revenues are released tomorrow. March revenues are expected to come in $273 million below the official estimate.

Several factors indicate that the large March revenue underage could be an anomaly.

• Sales tax collections are expected to be $61 million below estimate, attributable largely to a series of winter storms that many merchants around the state have said affected their business.
• Corporate taxes are expected to come in about $261 million short, but $145 million of that amount is in electric utilities gross receipts tax payments. All gross receipts are due in one annual payment in March, however, so the sizeable shortfall is not a trend indicator for the remaining months of the fiscal year.
• Personal Income Tax collections are expected to be above estimate in March by about $43 million.

Governor Rendell had previously taken steps to address a potential deficit that the administration had projected at $525 million by the end of the current fiscal year on June 30. While March totals will increase that challenge by as much as an additional $225 million, the Governor said the following actions make him optimistic that the state can still cope with the shortfall without additional revenue increases or spending reductions.

• Payments for tax refunds have been running less than expected, and the Governor's Budget Office estimates it can reduce the refund reserve by at least $50 million, making that sum available to the General Fund.
• The federal Department of Health and Human Services within the last month authorized additional payments to states for Medicare Part D. This will mean an extra $275 million for Pennsylvania, a portion of which is available to be used in this fiscal year.
• $37 million remains on the balance sheet as a projected ending balance, which is still uncommitted after previously announced plans to address the shortfall.

"If the situation does not deteriorate further, we expect to have on hand sufficient money to balance the budget," Budget Secretary Mary Soderberg said. "Of course, we are pleased that the federal government has provided unexpected assistance with our Medicare Part D costs that will help us tremendously.

"Given the several aberrations in the March numbers and the signs of possible improvement in the Personal Income Tax, I am hopeful that April revenues will be stronger," Soderberg said.

In the wake of the national economic recession that began in 2008, Governor Rendell cut spending in Pennsylvania by $2 billion. More than 500 line items were either reduced or eliminated entirely in the current state budget. Since taking office in 2002-03, the Rendell administration has reduced the number of state employees by 4,500, a figure that includes 2,200 during the current economic downturn. More than 700 of those were furloughs. Overall, the state is spending 4 percent less on the bureaucratic costs of government operations than it was spending seven years ago.

"We are proud that we have been able to hold down the cost of government so effectively, but it is clear that we have now cut very close to the bone. Yet we could still face some very difficult decisions," the Governor said.

In February, Governor Rendell proposed a budget that spends $2 billion less in state tax dollars than the 2008-09 budget, and requires no tax increases to balance. It includes $2.7 billion in federal stimulus funds to cover spending increases in several limited areas, most of which are costs that the state is mandated by law to cover.

Media contacts:

Gary Tuma, 717-783-1116

SOURCE Pennsylvania Office of the Governor