- Associated Press - Saturday, November 7, 2015

HARRISBURG, Pa. (AP) - With Pennsylvania’s budget stalemate in its fifth month, Democratic Gov. Tom Wolf and leaders of the Legislature’s huge Republican majorities say the momentum of closed-door talks has picked up and there is cause for optimism.

One key development is the identification of a source of money to help prop up the budget: diverting slot-machine gambling revenue into the state treasury.

However, numerous differences remain between Wolf and Republican lawmakers, and Republicans may have to confront their own internal differences to pave the way to a broader agreement.

Wolf’s press secretary, Jeff Sheridan, said Saturday that there are serious negotiations and a light at the end of the tunnel. That followed an upbeat note Friday by House Majority Leader Dave Reed, R-Indiana, to rank-and-file Republicans saying progress in talks could lead to the passage of a budget by Thanksgiving.

“We’re not there yet, but for the first time in a while, we seem to have a direction that we’re heading in together,” Senate Majority Leader Jake Corman, R-Centre, said Friday.

Wolf has sought a multibillion-dollar tax increase to correct a long-term deficit and narrow a funding disparity between rich and poor school districts that’s considered among the nation’s widest. Meanwhile, House Republican negotiators want Wolf to agree to privatize the state-controlled wine and liquor system and Senate Republicans want Wolf to agree to replace the traditional pension benefit for future school and state employees with a 401(k)-style plan.

Republicans have thus far united against a tax increase to support state government operations or public schools. As of Friday, there was no agreement on how to meet Wolf’s funding demands, Wolf administration officials said, and Republicans have not agreed to one of Wolf’s priorities: increasing taxes on Marcellus Shale natural gas production.

House Speaker Mike Turzai, R-Allegheny, has maintained his opposition to it, although Corman and Reed had not ruled it out as a concession to Wolf.

One new idea under discussion could provide a cornerstone of the cash Wolf is seeking: diverting the roughly $600 million in slot-machine gambling receipts that school districts currently pass along to homeowners as property tax reductions. That stream of money would shift to the state treasury, while negotiators are discussing an increase in the state sales tax to offset reductions in local school property taxes, another concept that is important to Wolf to improve equity in school funding.

The new money from a higher state sales tax would replace the diverted slot-machine dollars to schools - and then some.

But many disagreements remain between Wolf and Republican lawmakers.

For one, negotiators report differences over how much of an increase in aid the state should sent to public schools. Wolf will not sign onto a budget agreement without a historic increase, Sheridan said Saturday.

Wolf administration officials also say there is disagreement with at least some Republican negotiators over two issues that are “critically important” to the governor: which school districts would benefit the most from the new flow of sales tax revenue and which school districts would benefit the most from an increase in state aid.

The officials spoke only on condition of anonymity because they did not want to be identified speaking about sensitive closed-door negotiations.

Another disagreement is over wine and liquor sales.

Wolf has stuck by his September counteroffer to hire a private manager to run the system, administration officials said. That clashes with Turzai’s stance that the state must sell its wholesale and retail wine and liquor operations to private licensees.

Turzai’s spokesman Jay Ostrich acknowledged the differences raised by Wolf administration officials, as well as differences over the overall amount of aid for public schools.

“We are making progress, but we are not close to a deal yet,” Ostrich said.

In the meantime, the notion of raising state taxes to cut school property taxes divides Republicans.

Some Senate Republicans worry that school boards will simply keep boosting taxes, and they prefer the complete elimination of school property taxes - even if it takes a state tax increase of around $14 billion.

Wine and liquor legislation also could divide Republicans.

Some senators may resist the legislation if they believe it will increase consumer prices simply to provide more money to the state treasury.

Sen. Charles McIlhinney, R-Bucks, who chairs the committee that handles wine and liquor legislation, said it is “on a wish list that doesn’t have a fiscal impact. The money derived is directly related to how high we’ll drive up the cost of booze.”

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