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Senate passes 10% tax hike House, governor must approve increase in Pa. income levy; slot machine haggling fails

Sunday, December 21, 2003

By Tom Barnes and Bill Toland, Post-Gazette Harrisburg Bureau

HARRISBURG -- Following an exhausting, all-night bargaining session, the state Senate yesterday approved a $1.3 billion tax increase -- including a 10 percent income-tax hike -- but was unable to fashion a deal that would have brought slot machines to the state's racetracks, big cities and resorts.

Pennsylvania, the only state in the nation that hasn't completed its 2003-04 budget, is now poised to enact a full spending plan this week, nearly six months after the state's July 1 budget deadline.

The Senate deal must next be approved by the House of Representatives and signed by Gov. Ed Rendell.

After starting its session Friday evening and talking all night, the Senate finally approved a $22 billion tax-and-spending package by 7:45 a.m. yesterday, minutes after daybreak. The tax portion of the plan was approved by a 30-19 vote, while the spending side passed 42-7.

"This [package] was negotiated over a long period of time," said Senate President Pro Tem Robert Jubelirer, R-Altoona. "It was important to get the job done. I think we have effected a reasonable compromise, a budget that is fiscally responsible."

Over a full fiscal year, the plan will raise more than $1.3 billion in new revenues, due largely to what will be the first increase to the personal income tax rate in a decade. Under an agreement among Rendell and Senate and House negotiators, the tax rate will be hiked from 2.8 percent to 3.07 percent, starting Jan. 1.

The rate increase will raise $729 million per year for state coffers, starting next fiscal year. For the remainder of this fiscal year, from January through June, the state expects to get $302 million.

That revenue will be combined with an additional $500 million from a new tax on cell phone companies, a tax on interstate land-line phone calls, a higher tax on a pack of cigarettes, fee increases for birth and death certificates and other things, plus delaying the phaseout of a tax on businesses' physical assets.

"This has been a long, arduous, but in the end, enjoyable process," said Sen. Vincent Fumo, D-Philadelphia. "We are the last state in America to get a budget, but we did get it done, finally."

Steven Miskin, aide to House Majority Leader Sam Smith, R-Punxsutawney, said the Senate-passed budget isn't perfect and some House members object to parts of it, but he's fairly confident the House will approve it, probably tomorrow.

Rendell is also going along with the new income tax rate, even though it's considerably lower than the 3.75 percent rate he originally sought.

"This is a terrific day," Rendell said after the all-nighter. "We've wiped out a structural budget deficit that has plagued us for two years, and restored onerous cuts in spending. Children will see an increase in education spending for proven programs that we know work.

"The next budget will be much, much easier," he promised.

Much of Friday's and yesterday's back-stage negotiating was centered not on the package itself, which was fundamentally settled during the week, but on a last-ditch effort to cobble together a slots agreement.

Regarding the failed slots plan, Miskin put the blame squarely on Fumo, who at the last minute pushed for a sprawling gaming bill that would have permitted slots at as many as 15 locations statewide -- eight racetracks, four stand-alone sites (including two in Fumo's hometown of Philadelphia and one in Pittsburgh), plus two resort casinos (including Nemacolin), and one Indian-owned casino.

A variation on that plan called for 13 slots operations, six at tracks, five at nontracks and two for Indians.

The Indian proposal put Fumo at loggerheads with fellow senators, including Sen. Robert Tomlinson, R-Bucks, who lobbied for a bill to legalize slots at a maximum of 11 racetracks. Tomlinson said Pennsylvania racetracks need help from slots, but insisted there was no Senate support for Indian gaming.

The state Senate yesterday voted 30-19 to raise the state's income tax from 2.8 percent to 3.07 percent.

Voting in favor:
Jim Ferlo, D-Highland Park; Richard Kasunic, D-Fayette County; Allen Kukovich, D-Manor; Gerald LaValle, D-Beaver; Barry Stout, D-Washington; Jack Wagner, D-Beechview.

Voting against:
Jay Costa, D-Forest Hills; Sean Logan, D-Monroeville; Jane Orie, R-McCandless.


Fumo blamed the collapse of the slots measure on "a small handful of lawmakers [who] have refused to accept certain realities about Native American rights under federal law."

It wasn't the number of slots casinos that buried the deal, Fumo said, but the idea that American Indians would own one.

Miskin saw things differently, saying: "Make no mistake why [the slots bill failed]. It's because of the greed of Vince Fumo. Pennsylvanians need to ask why he's holding up property tax relief ... We're closer than we've been to property tax relief in 35 years, and it's all being held up because of one senator."

Rendell wants to raise up to $1 billion in new revenue from slot machines in order to provide property tax relief statewide. Legislators were hoping to get a deal done now so they could use property tax relief as political cover for any fallout that might come from the income tax increase.

Rendell said he still thinks it's possible to resurrect a slots bill in late January and hopes that will be successful in bringing about property tax relief.

On the spending side of the new budget, the Senate agreed to restore $450 million in spending that had been cut in March, including $86 million for hospitals, $91 million for drug and alcohol treatment and other human services programs, $16 million for mass transit, $12.5 million for trauma centers, $10 million for libraries around the state and $6.7 million for community colleges.

Some of the funding restorations will be paid for with money the state has received from the federal government as part of the federal tax rollback of $350 billion.

The budget approved by the Senate calls for $224 million in spending for new education programs sought by Rendell, including $175 million for block grants for early childhood education and full-day kindergarten across the state, as well as $34 million for reading and math tutoring and $15 million for Head Start programs.

The Senate-approved budget includes $850 million to eliminate a projected deficit in the state's current budget year, which ends June 30.

The Senate package also includes $50 million in "community revitalization grants," money for pet projects in the districts of Democrats and Republicans in the House and Senate. The $50 million is for the remaining six months of the current fiscal year. Last year, the legislators spent $65 million on their district projects, but that was for a full 12-month period.

In addition to the four legislative caucuses, Rendell will get one-fifth of the $50 million pie, said Erik Arneson, an aide to Senate Majority Leader David Brightbill.

Arneson said he's hopeful the House will approve the tax and spending package on Monday and that Rendell will sign it. The package contains a 2.8 percent increase in basic education funds for the state's 501 school districts and a 4.5 percent increase in special education funds.

Completion of the budget will allow the state to release $4.3 million in subsidies to the state's school districts and avoid the threat of some of them closing due to a shortage of money.

The New Brighton Area School District in Beaver County, for example, was among those that had threatened to shut down Dec. 31 if the state didn't provide money for its schools.

Rendell had vetoed the $4 billion education segment of the $22 billion state budget in March in order to force the Legislature to negotiate on his new education programs. Originally he'd sought up to $650 million for those programs, but in the end compromised on $224 million. Because the current school year is half over, most new education programs won't start until July.

Under the Senate plan, the per pack tax on cigarettes, now at $1, will rise by 35 cents. Of that, 10 cents will generate a total of $72 million for the general fund, and the other 25 cents will produce $183 million for the MCARE fund, which will help doctors pay for their medical malpractice insurance.

The MCARE solution was a measure long-sought by Pennsylvania's doctors and surgeons, especially those from the Philadelphia area, who sometimes face malpractice insurance rates twice that of their Pittsburgh counterparts.

Doctors must carry, at minimum, two types of insurance -- at least $500,000 in coverage from a primary carrier, and another $500,000 in coverage from the state's MCARE fund. Yesterday's deal will allow high-risk specialists -- obstetricians, orthopedic surgeons, neurosurgeons, nurse midwives and rural family doctors who deliver babies -- to entirely forgo their MCARE premiums.

All other doctors would see a 50 percent reduction in their MCARE premiums, which vary from county to county and specialty to specialty. The abatement plan would help reduce the overall premiums for high-risk doctors by up to 33 percent, so long as the doctors sign a pledge saying they'll remain in Pennsylvania and practice here through the calendar year.

The Senate, in the end, rejected other revenue-raising ideas that were once considered, including a sales tax on liquor by the drink, a tax on beer by the keg and a 6 percent tax on the gross revenues of the seven major league sports teams in Pennsylvania.

Tom Barnes can be reached at or 1-717-787-4254. Bill Toland can be reached at or 1-717-787-2141.

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