Unlike the federal government, states can't operate at a deficit. So Gov. Rendell and the legislature have limited choices - cut spending, raise taxes or both. The House Appropriations Committee will hold a hearing tomorrow in Harrisburg to detail the state's fiscal dilemma.
Rendell last month cut $311 million in spending from the state's $28.26 billion budget, on top of an earlier freeze on hiring and a moratorium on purchasing state vehicles. The latest cuts included $22 million from the State System of Higher Education.
The spending cuts amount to a whopping 1 percent, which is nothing given the bleak state of the economic decline. Rendell needs a sharper pencil. The governor has asked state row offices - auditor, treasurer, attorney general - to cut an additional $39 million. The state also has a Rainy Day fund of about $740 million that will almost certainly be tapped for this emergency.
Unless more spending cuts are taken, it seems increasingly likely that the legislature will need to consider a tax increase in the first half of next year to balance the budget.
Raising taxes will further squeeze consumers who are getting hit from all sides as prices increase, home values decrease, and incomes remain flat.
House Appropriations Chairman Dwight Evans (D., Phila.) said he wants to examine the possibility of borrowing more, with an eye toward funding infrastructure projects.
There's a limit to how much core services such as transportation, health care and education can be cut. A deficit of as much as 7 percent will be difficult to close with spending cuts alone. Steep cuts in spending could hurt vulnerable populations such as senior citizens, low-income children, and people without health insurance.
