HARRISBURG – Governor Edward G. Rendell today issued the following statement regarding the state budget:

For almost a year our country and our commonwealth have struggled to deal with the pain caused by the worst economic recession since the Great Depression. The greed and need for instant gratification of those who brought our financial system to its knees has hurt everyone.  Now, at kitchen tables across this state, families are struggling with heart-wrenching decisions. You’ve cut back luxuries and in some cases even necessities and it’s still not enough.

So it is in our state Capitol.  State revenues have fallen sharply, creating a gaping hole in our state budget.  Like families across the state, we have cut over and over again.  And still it’s not enough.  Already we have made $1.5 billion in spending cuts and we still need to cut more.  And make no mistake, we will cut more.

What I will not allow, however, are politically expedient decisions that gut essential health and safety protections, put people out of work, or shortchange the future of our children.  I will not make decisions that hurt us in the long run, just to avoid difficult decisions in the short run.

I want to review with you why we are faced with these difficult decisions.

The national recession took hold last September. By December, we knew we had to make cuts to keep the budget in balance and we did – we cut a half a billion dollars from state spending.  Revenues continued to fall through the winter.  As a result, in February I proposed over a billion dollars in additional cuts.  As revenues dropped through the spring, it was clear that the cuts already on the table weren’t enough.  We have to cut more.  This week, I am meeting with my Cabinet to go over another half a billion dollars in cuts that we must make.  So now we will have cut $2 billion from our budget.  Nevertheless, we expect that we will end the current year with a $3.2 billion revenue shortfall that has produced a deficit of over a billion dollars.

I am sad to say that we simply cannot cut enough to balance the budget.  Even the budget passed by the Senate – which made debilitating cuts that, at a minimum, would eliminate almost 800 State Troopers, end in-home care for thousands of seniors, terminate nursing home care for hundreds of veterans, shut down job training for thousand of unemployed Pennsylvanians, and close half of our pre-k programs – even with cuts like these, the Senate budget is still $1 billion short of being balanced.

I’ve tried mightily to avoid a broad-based tax increase by proposing tough cuts and minimal revenue enhancements. It’s not enough. No matter how many cuts we make, we will still need to raise additional revenue to balance the budget and protect our public safety, jobs, our health and our future. In February, I proposed an increase in the cigarette tax, a tax on cigars and smokeless tobacco and a tax on companies that drill for oil and gas in our state.  But even with these tax increases and the $2 billion in cuts we’ve made, we will not close the hole.  Without additional revenues, our budget deficit will be $2 billion next year, $5 billion in the following year and $10 billion the year after.

You may be asking yourself why the federal stimulus funds don’t solve this problem.  In fact, if we didn’t have the stimulus funds our deficit would be over a billion dollars larger this year and next and remember those funds expire in two years. We must and we will preserve the vital services that protect our commonwealth in the present and that are crucial to setting the stage for our future. So we must fix the deficit now, fix it for the long term, and fix it we will.

First, unfortunately we must suspend the business tax cuts that were planned for this year known as the phase out of the Capital Stock and Franchise Tax.  Since taking office, I have cut business taxes by $1.7 billion.  But business must shoulder some of the burden.  I am not – I repeat – I am not raising taxes on businesses.  I am proposing that — in this recession — we delay further business tax cuts.

Next, I am proposing to raise our state income tax, the nation’s second lowest, from its current rate of 3.07 percent to 3.57 percent. Even with this increase, Pennsylvania will have the third lowest personal income tax rate in the nation.

And I propose that when we enact these tax changes, we write the laws to guarantee that the phase-out of the business taxes begins again in 2012 and that we roll back the state income tax increase to our current level of 3.07 percent in that year as well.

I know that you may be skeptical and think that that once the PIT tax is increased it will never be rolled back.  But Pennsylvania has made and kept this promise twice before – in 1983 and 1991 – when, like today, tax increases were needed to deal with a national recession.  In both cases the tax increases were rolled back as promised.

I realize that any tax increase is painful, especially in these tough times.  I want to put this increase in concrete terms. The average Pennsylvanian who earns around $50,000 a year will pay just slightly less than $5 per week more in taxes. A family earning $100,000 will pay about $10 more per week.

But four out of every ten households will not pay any additional taxes. Since retirement income is tax-exempt in Pennsylvania, over a million seniors living on fixed incomes will not be affected.  And most families earning less than $32,000 a year also will not see their tax payments increase at all. And there is also a bit of relief for every family, since state taxes are a deductible expense for federal income tax purposes. So, if you itemize this increase will cost you significantly less.

I believe these steps are essential.  We are constitutionally required to have a balanced budget. We can’t deficit spend like the federal government. And we simply cannot achieve a balanced budget without additional revenue.

The citizens of Pennsylvania didn’t cause this problem. A bunch of greedy Wall Street millionaires did.  So it pains me to have to ask you to sacrifice and be part of the solution.

I know the critics will attack Harrisburg for raising taxes.  But if we allow education to be cut by more than a billion dollars, we will be simply forcing school districts to raise your property taxes. Districts across the state have told us they will have no choice. If we do not live up to our state obligations, they will have to raise property taxes.

Today I am calling on our legislators to demonstrate the political courage to put the next generation before the next election.  So if at the state level we don’t raise your taxes, we might escape your wrath, but you would simply wind up paying more and putting an impossible burden on our schools.  That would be the coward’s way out.  It would be just old-fashioned buck-passing.

And most of all, we just can’t afford to go back.  The commonwealth has made so much progress in economic growth, renewable energy, environmental protection, health care for our seniors and kids and in education for our kids – we have made nationally recognized gains in our schools, even the toughest schools in this state.  Pennsylvania is one of only nine states with significant increases in both elementary reading and math on the national tests.  And, in the last six years the percentage of students able to perform reading and math at grade level increased by 30 percent.

Improving education is key to our having a vibrant economy in the future.  As the global economy becomes more competitive, it is clear that the sole criteria that will determine our fate are the skills and education of our workforce.  Making sure we continue to make educational progress is not only the right thing to do for our kids, it is what we must do for our state’s future.

Across our 67 counties, the impact of the strategies we put in place over the last six years is obvious.  Schools are performing better, communities are more vibrant and our economic base is more stable.  We can’t go back, we shouldn’t go back.  And I won’t let us go back.

###