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The Pennsylvania budget

February 05, 2004

Pennsylvania Gov. Ed Rendell this week presented a lawmakers with a $22.7 billion budget for fiscal year 2005 that contains no major tax increases, but boosts a number of user fees. Of more concern, it also proposes millions in additional borrowing and legalizing slot machines.

Because the state's reserves were drained prior to the last election to avoid a tax increase, lawmakers need to make sure Rendell's ambitious plans are affordable and his priorities are in order. And the top one needs to be reducing school districts' dependence on property taxes for their funding.

Highlights of the budget released by The Associated Press reveal a new $5-a-ton fee on municipal solid waste, a charge which, combined with other fees, would pay debt service on an $800 million bond issue for environmental protection.

Of that total, $330 million would go for parks, open space and farmland; $30 million for cleanup work and $170 million to rebuild and revitalize older communities.

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Rendell also wants the authority to have an independent agency issue $2 billion in bonds that would be used to leverage an additional $3 billion in private investments. Most of this would not count against the state's debt load, but would presumably be backed by the full faith and credit of Pennsylvania.

How much debt is too much? Jeffrey Panger, an analyst with Standard & Poor's, a bond rating agency, said the state's debt is manageable now, with only 3 percent of the FY 2003-04 budget going to interest payments. If it exceeds 12 percent, Panger said, it begins to be a concern.

But note that this year's 3 percent is actually $670 million and that the administration's revised estimate of this year's general fund spending represents a 6 percent increase over last year.

Unless you're selling snow shovels and road salt, your business or personal income probably hasn't increased by 6 percent over last year. Clearly some restraint is in order, especially because if businesses aren't investing in their own facilities when interest rates are at historic lows, is it a good bet for the state to do so?

There are a lot of matters to sort through here, but finding an alternative to the state's heavy dependence on property taxes to fund schools should be the top priority. Once that funding source is identified, then other issues can be addressed.

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