The Pew Charitable Trusts

In his last executive budget address, term-limited Democratic Gov. Edward G. Rendell Feb. 9 proposed a controversial tax plan that would trim the sales tax rate, but apply it to more goods and services. His $26.3 billion budget proposal includes $2.7 billion in federal stimulus money and assumes continued federal help with health care expenses.

Rendell also called for continued increases in education funding: $354 million increase for the coming year. He said over the last seven years, the state increased state spending for public education by more than $3 billion.

The governor asked the split-party legislature to approve his tax overhaul and put the money into a special fund called the Stimulus Transition Reserve Fund to be used starting July 2011 when federal stimulus money runs out. But to avoid a budget impasse and government shutdown like the one Pennsylvania suffered last summer, the outgoing governor said he would reluctantly sign a budget without the tax changes.

Under Rendell's plan, the state sales tax would decline from 6 to 4 percent while dozens of currently exempt goods and services, including cigars and smokeless tobacco, movie tickets, and lawyer and accountant fees, would lose their tax exemptions. In addition, the plan would institute a new natural gas severance tax and eliminate a 1 percent bonus for businesses that pay their taxes on time and a loophole that exempts 75 percent of companies doing business in Pennsylvania from corporate income taxes when they register in tax-haven states like Delaware.

Rendell also called for an increase in the percentage of electric power that must be produced from alternative energy sources and a consumer pricing plan that would phase-in rising utility costs resulting from removal of the commonwealth's 10-year-old price caps. 

To help unemployed workers and qualify for federal incentive funds, Rendell called for reforms to the commonwealth's unemployment laws that would allow more workers to qualify for benefits. He also sought approval for a so-called Work Sharing law that would give unemployment benefits to workers in companies where wages have been reduced to avoid layoffs.