- Associated Press - Wednesday, December 14, 2016

HARRISBURG, Pa. (AP) - State officials warned Wednesday Pennsylvania faces a projected $600 million shortfall for its current budget year, while one of the Legislature’s top Republicans suggested sweeping structural changes to state government may be needed to solve the latest fiscal jam.

The projected shortfall in the state government’s $31.5 billion budget is very bad fiscal news for budget makers who have struggled to address a persistent post-recession deficit that has damaged the state’s credit rating.

House Majority Leader Dave Reed, R-Indiana, said the usual budgeting exercises will not be enough, and that it’s not likely lawmakers in a Legislature controlled by substantial Republican majorities will support increasing either the state sales tax or income tax.

Reed said government must undergo major changes, such as consolidation of state agencies or outsourcing human services safety-net functions to nonprofit agencies.

“To balance a budget this year, we’re going to have to determine what are the core functions of government, how do we deliver those services and then what does a government apparatus look like that can deliver those same services or services like those under the actual revenues that we have,” Reed said.

The running shortfall in the 2016-17 budget year is hardly the state’s only financial headache. The Legislature’s nonpartisan Independent Fiscal Office also has projected a $1.7 billion deficit in the fiscal year that will start in July.

All options should be considered, Reed said, including finding savings in Medicaid - much of which goes to pay for nursing home beds - and work on the politically divisive effort to cut pension benefits for employees of state government and public schools.

“Corporate welfare” must also be considered, Reed said, as well as the Legislature’s own costs, which at more than $300 million a year is the nation’s second-most expensive, according to the National Conference of State Legislatures.

“We’re all in this together, so we’re going to need to solve it together,” Reed said.

House Democrats issued a statement blaming their GOP counterparts for “a string of unrealistic budgets” and saying proposed changes to state agencies would merit extensive public hearings.

While Reed said he hopes for cooperation by Wolf, Republican lawmakers could simply write and pass their own budget, he warned, after two years under Wolf in which budget legislation became law without the governor’s signature.

Asked about Reed’s comments Wednesday, Wolf said his response will come Feb. 7, when he delivers a 2017-18 budget proposal to the Legislature. Asked if he was concerned about Republicans simply writing and passing their own budget, the governor replied: “That’s what they did the last two years.”

Wolf’s first year was marked by a record-long budget stalemate. In his second budget, finalized last July, Wolf let the main spending bill become law without his signature after Republican lawmakers were unable to settle on a way to pay for it. A few days later, they passed a revenue package that included a $1 per-pack tax increase on cigarettes, raising the tax to $2.60 per pack.

However, that budget plan is now suffering from lackluster tax collections and underfunded human services programs.

Wolf’s budget secretary, Randy Albright, said Wednesday the governor has directed cabinet secretaries to find ways to reduce the shortfall and that the administration was hoping to avoid painful cuts.

He also said the Wolf administration is speaking with top lawmakers before Wolf delivers his budget proposal and that conversations about the state’s fiscal challenges have begun. The administration is committed to doing everything it can to avoid a major tax increase, Albright said.

But he also said the administration remained committed to helping people who need it, and he warned that cuts at the state level - such as the $1 billion cut to education in 2011 - can bring negative consequences.

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