Following May's tax collections, the Pennsylvania Department of Revenue reports that state General Fund revenues are $1.2 billion below estimate for the 2009-10 fiscal year.

• Tax collections have been below estimate all eleven months of the fiscal year to date.
• In his budget address in February, Gov. Rendell confirmed Commonwealth Foundation predictions that his budget spent too much.
• In March, Gov. Rendell's advisers issued a statement saying they expected state revenues to recover before the end of the fiscal year, which has not occurred.  

Historical General Fund Budget Shortfalls: Projected vs. Actual Revenues (Monthly)
(in millions of dollars)
	2008-09			2009-10
	Actual	Difference	Percent	Actual	Difference	Percent
July	$1,746.20	($0.08)	0.00%	$1,650.89	($2.11)	-0.13%
August	$1,668.90	($117.50)	-6.58%	$1,605.50	($19.90)	-1.22%
September	$2,343.70	($163.80)	-6.53%	$2,050.36	($118.64)	-5.47%
October*	$1,649.00	($283.40)	-14.67%	$3,519.06	($19.54)	-0.55%
November	$1,640.90	($93.10)	-5.37%	$1,596.92	($56.78)	-3.43%
December	$2,109.00	($156.63)	-6.91%	$1,983.51	($37.19)	-1.84%
January	$2,173.80	($261.74)	-10.75%	$2,121.86	($120.20)	-5.36%
February	$1,502.20	($196.95)	-11.59%	$1,489.64	($102.26)	-6.42%
March	$3,873.30	($336.09)	-7.98%	$3,904.04	($242.96)	-5.86%
April	$2,952.00	($942.50)	-24.20%	$2,920.08	($390.22)	-11.81%
May	$1,613.30	($287.50)	-15.13%	$1,804.50	($124.90)	-6.47%
June	$2,300.00	($415.00)	-15.29%
FY Total	$25,572.30	($3,254.29)	-11.29%	$24,646.36	($1,234.70)	-4.77%
* October 2009 includes $1.8 billion in non-tax revenue, largely from transfers from other funds May 2010 Includes one-time revenue from table games licenses

Gov. Rendell's plan to address the current year shortfall included in his proposed state budget include:

• Use of the remaining General Fund balance ($354 million after October transfer of $1.8 billion from other funds)
• $135 million in reductions from the enacted 2009-10 PA budget. However, last year, despite a $3.2 billion shortfall, and a mid-year pledge to make budgetary cuts, the governor and General Assembly failed to reduce spending accordingly. 
• In March, the Rendell administration put out a statement expressing optimism they could still balance the PA state budget without tax hikes, this is based on:
  • An additional $275 million from the federal government for Medicare Part D reimbursement
  • $50 million due to lower than expected refunds from tax returns
  • Better collection months, relative to estimate, in the remaining months
    

In addition to the $1.2 billion revenue short shortfall, the state budget faces other looming threats:

• In April, the Commonwealth Court ruled that using the surplus from the MCare Fund was illegal and must be repaid, thus creating another $800 million hole in the Pennsylvania state budget.
• The 2009-10 budget exhausted all the state's one-time revenue sources, such as the "Rainy Day Fund."
  
• The federal stimulus funding disappears after the 2010-11 fiscal year; Gov. Rendell's proposed $29 billion budget for 2010-11 relies on $2.8 billion in stimulus funding.
• The state faces dramatically higher state pension contributions - to the tune of a projected $3 billion increase at the state level alone beginning in 2012-13.
  

Rather than addressing these crisis, Rendell's proposed Pennsylvania state budget calls for more of the same:

• A $1.3 billion increase in General Fund spending.
• Reliance on an addition $850 million in federal Medicaid funding, which has yet to pass Congress.
• Delaying pension payments, pushing higher costs onto future generations.
• New Taxes:
  • Sales tax expansion to 74 currently untaxed items & lower rate - generating $531 million in additional revenue next year and $866 million the following year.
  • Reduces CNI from 9.99 to 8.99, imposes combined reporting - generating $66 million next year and $167 million the following year.
  • New tax on natural gas extraction - $161 million in 2010-11 and $260 million thereafter.
    
  • New cigar/smokeless tobacco tax - $42 million per year.
    
  • Elimination of the vendor discount for sales tax collection - $75 million per year.

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For more on the Pennsylvania State Budget, visit CommonwealthFoundation.org/budget

The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.