Governor's Proposed Budget Locks In 26 Percent Cut In DEP, 18 Percent Cut At DCNR

Gov. Rendell today proposed his 2010-11 state budget effectively locking in the 26 percent cut made in the Department of Environmental Protection and 18 percent cut at the Department of Conservation and Natural Resources made in the current year budget and the additional mid-year cuts.
The Governor's budget documents are available online--
-- Governor's General Budget press release;
-- Governor's press release on Health Care and Seniors;
-- Governor's press release on Reforming Taxes;
-- Governor's press release on Education, Preparing a Workforce;
-- 2010-11 detailed budget documents;
-- Proposed Budget Fact Sheets - Highlights, Addressing Future Deficits, School Funding, Childhood Education, Taxing Cigars, Smokeless Tobacco, Natural Gas Tax.
Budget Overview
Gov. Rendell proposed a $29 billion General Fund budget for 2010-11 that assumes the state will receive $2.75 billion in federal stimulus funds, without a broad-based tax increase, but he did propose changes in the personal and businesses tax code.
He also proposed a Stimulus Transition Fund to reduce the projected $2.4 billion deficit in the 2011-12 budget when federal stimulus funds are no longer available and takes a swing at the multi-billion dollar unfunded pension cost spike.
The Governor would generate revenue for the Stimulus Transition Fund, which could not be used until the 2011-12 budget, by calling on the General Assembly to make several changes to state's tax structure to make it fairer. He would --
-- Lower the 6 percent Sales Tax to 4 percent by eliminating 74 exemptions now in the law (but not food, clothing and prescriptions) and taxing legal fees and other items, eliminating the 1 percent vendor's discount and expanding the tax to tobacco products;
-- Cut the Corporate Net Income tax from 9.99 percent to 8.9 percent by adopting combined reporting, eliminating the Delaware loophole and eliminating the cap on net loss carry forward; and
-- Proposes a natural gas production severance tax that he estimates will generate about $178.6 million-- $17.9 million to be returned to communities with Marcellus Shale gas drilling impacts and $160.7 million to the Transition Fund..
The Governor also plans to take steps to deal with the looming unfunded pension cost spike in 2012-13 by increasing the Commonwealth's employer payments for the State Employees Benefit Fund by $200 million, reamortizing both the State Employee and School Employee Funds over 30 years and he laid out a schedule of increasing employer contributions over the next few years, capping annual increases at 3 percent.
Senate Republicans React
Senate Majority Leader Domining Pileggi (R-Delaware) said the Governor is proposing over $1.1 billion in increased spending at the same time the state is facing a budget deficit of $500 million. He also said now is not a time to radically restructure the state's tax system with the Governor leaving office. The next Governor should be involved in this discussion. He added he thought it was a question of timing on the Marcellus Shale severance tax. He doesn't not want to see the economic potential of this industry lilmited.
Senate Republican Appropriations Chair Jake Corman (R-Centre) said large sections of the Governor's budget are based on action by the federal government to provide additional federal stimulus funds and on passing health care legislation. It's a budget, he said, based on "a wing and a prayer." "Government spending will not get us out of this recession, jobs will."
Senate President Pro Tempore Joe Scarnati (R-Jefferson) said, "we aren't cowards if we don't raise taxes." On the Marcellus Shale tax, he said the Governor wanted and the General Assembly passed grant programs for solar and wind energy adding he isn't asking for that kind of support, only for the gas industry to be treated fairly.
Marcellus Shale Tax
The proposed Marcellus Shale natural Gas severance tax would charge companies a 5 percent tax on the value of the natural gas at the wellhead, plus 4.7 cents per 1,000 cubic feet of natural gas taken from the ground.
The Governor estimates the tax would generate $178.6 million in the 2010-11 fiscal year. The Governor would allocate $160.7 million to the proposed Stimulus Transition Fund and $17.9 million to local communities seeing infrastructure and other impacts in communities where drilling is occuring under a proposal that was not detailed.
Gov. Rendell projects the severance tax would generate $260 million in 2011-12, $320 million in 2012-13, $396.2 million in 2012-14 and $475.6 million in 2014-15.
He also repeated his proposal to hire 68 new employees at the Department of Environmental Protection and made unspecified increases in staff to allow the Department of Conservation and Natural Resources to oversee increased natural gas drilling in State Forests.

Note: All budget requests incorporate the budget reductions already taken in the 2009-10 budget.

Environmental Protection
Overall - General Fund budget cut $3.7 million, overall counting all funds cut $8.2 million
Personnel line items cut $1.3 million
Sewage Facilities Planning Grants cut $100,000
Sewage Faiclities Enforcement Grants cut $300,000
Stormwater Management - zeroed out
Environmental Stewardship Fund Watershed Protection cut $1 million
Conservation Districts cut $31,000
Nutrient Management Fund increase $614,000
Consumer Eduction Program - zeroed out
Recycling Fund - reducing grants $8.3 million because Recycling Fee needs to be extended

Conservation & Natural Resources
Overall - General Fund cut $994,000, overall counting all funds cut $23.7 million
Heritage Park Grants - zeroed out
Keystone Park & Forest Facilities - increased $3.9 million
Keystone Grants for Local Recreation - increased $3.2 million
Keystone Grants for Land Trusts - increased $1.3 million
Oil and Gas Fund - transfers $180 million to the General Fund to balance the budget from State Forest Marcellus Shale natural gas lease revenues.

Agriculture
Overall - General Fund $5.3 million, overall counting all funds cut $101,000
Conservation Districts cut $570,000
Nutrient Management Fund cut $100,000

Other
Environmental Stewardship Fund - for the first time more than half of the income in the Fund will go for debt service -- $36.8 million with only $33.2 remaining for projects. That amount will increase to $60 million of the $66 million in new revenues coming into the Fund.

REAP Tax Credit - As proposed last year in the two-year budget, the Resource Enhancement and Protection (REAP) farm conservation tax credit will be funded at $4.5 million, down from $5 million in the current year and $10 million in the first year.