By Associated Press - Tuesday, April 29, 2014

HARRISBURG, Pa. (AP) - Pennsylvania’s tax collections during the all-important month of April were badly lagging projections Tuesday, and House and Senate Appropriations Committee officials said the only question was how much deeper the state government’s shortfall will plunge.

The poor performance is a sobering development for Gov. Tom Corbett and lawmakers as they try to craft a budget during an election year. Based on estimates by House and Senate Appropriations Committee officials, the shortfall is expected to be big enough to knock Corbett’s $29.4 billion budget proposal out of balance by $1 billion or more.

On Tuesday evening, Corbett, a Republican who took a 2010 campaign pledge not to raise taxes, met with top Republican lawmakers in his Capitol offices to discuss the matter. Afterward, he declined to tell reporters how he might address the budget gap.

“It’s all part of the budget process,” Corbett said. “Do we have some preliminary ideas? Yeah, but I’m not going to talk about it now.”

Corbett’s spending plan for the 2014-15 fiscal year that starts July 1 is an increase of almost 3.7 percent, or more than $1 billion, over the current year’s approved budget. The spending increase largely would go toward underwriting a new grant program for public schools, shortening waiting lists for social services and making rising payments for public employee pensions and health care.

To balance, the plan counts on a robust increase in tax collections, along with about $1 billion in one-time sources of cash or savings, such as delaying some pension and health care payments.

With two days left in April, Pennsylvania’s tax collections were $595 million behind expectations for the month, said Ben Waxman, a spokesman for the Senate’s ranking Appropriations Committee Democrat, Vincent Hughes of Philadelphia.

That’s on top of earlier projections that had Pennsylvania $170 million behind expectations for the fiscal year as of April 1 - a shortfall tantamount to a $340 million gap because it reduces next year’s revenue projection by a dollar-for-dollar amount.

“Right now there is a very large deficit,” Waxman said. “We don’t know how bad it’s going to be, but all the indications are that it’s going to be quite bad.”

In a report issued Tuesday, the Nelson A. Rockefeller Institute of Government at the State University of New York suggested that states’ personal income tax collections are lagging because taxpayers sold off securities in 2012 to avoid higher federal tax rates on capital gains that went into effect in 2013. As a result, it said, the sell-off likely created a “trough” in capital gains in 2013.

Miriam Fox, the executive director for House Appropriations Committee’s ranking Democrat, said she expects April will end with a year-to-date shortfall of $500 million to $600 million, creating the prospect of a shortfall of $1 billion or more.

Senate Appropriations Committee Chairman Jake Corman, R-Centre, said he expected an approximately $500 million shortfall at the end of April with little hope that May or June will improve the picture. The growing shortfall has revived talk of slapping a tax increase on Pennsylvania’s booming natural gas industry.

Discussions on how to deal with the budget gap are at an early stage, Corman said, and he cautioned that even a tax in the natural gas industry will not be enough to keep pace with growing pension and health care costs.

On Monday, credit rating agency Standard & Poor’s warned that it could downgrade Pennsylvania’s rating in the coming months if it does not see significant strides to structurally balance the budget and address long-term pension liabilities.

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