Text of Gov. Ed Rendell's 2010-2011 budget address

Over the last seven years, despite the many challenges that have confronted Pennsylvania, we have together increased annual state spending for public education by more than $3 billion. We have recognized that increased funding for education is a key driver of economic development, because it produces young people who are better able to take their place as productive members of society. Together, we have built the nation's best early childhood education infrastructure, and we enacted a school funding formula based on a costing-out study commissioned by, yes, the General Assembly, that is closing the "adequacy gap" in education funding. At a time when states across the nation are desperate to cut costs across the board, we are the only state that has substantially increased funding for our public schools. We have invested in our children, and they are rewarding us with rising achievement levels that are the envy of the nation. Just two weeks ago, Education Week came out with the rankings of all fifty states. In just six years, Pennsylvania moved from 24th place in terms of percentage of kids on grade level in 8th grade math - to 10th place. With respect to reading we moved from 16th to 6th in the nation for the percentage of fourth graders reading at grade level. These improvements are no accident. In the 50 districts that have received the largest increases in state funding since 2002, students performing at grade level grew by an average of 41 percent. Just as significant as the increase in the number of students on grade level is a decrease in the percentage of students who are years behind. The largest decreases in the number of these students were in districts that received the greatest increases in state investments since 2002. And our early childhood success is the envy of most states with almost 48 percent of our children enrolled in pre-k programs before they start school. Our progress is not a secret. Across the country Pennsylvania is hailed. In fact, the Center for Educational Policy, a highly r espected think tank in Washington, found that from 2000-2008 Pennsylvania was the only - let me repeat that - Pennsylvania was found to be the only state in the nation to show significant improvement in reading and math in every grade tested. So as we work toward closing the "adequacy gap" in school funding, we also are closing the "achievement gap" in student performance. For these reasons, the proposed FY2010-2011 budget reflects our continued support for the funding schedule set forth in the costing out study, and it therefore includes a second $354 million increase in state funding for public schools. I am committed to this increase for two reasons: first and foremost, because it's simply the right thing to do for Pennsylvania's future. And second, because increased state funding for public education relieves the pressure on local communities to increase property taxes. We promised property tax relief, and we have delivered it for thousands of Pennsylvania families, especially our senior citizens. We cannot give relief with one hand while taking it away with the other, and this budget honors both obligations.

The proposed FY2010-2011 budget also provides for substantial increases in our Correction costs. I am troubled by this increase, and I know that many of you share this concern. We have worked together on critical reforms over the years, yet the cost of housing prisoners in Pennsylvania continues to rise. We must reverse this trend, if for no other reason than the failure to do so threatens to overwhelm our ability to meet skyrocketing prison costs. Increased funding for public education is one great way to address this problem, because it provides an opportunity for our young people to choose the right path. But we must do more to reduce the rising costs of incarceration, and I welcome the opportunity to partner with you to achieve this goal.

With the exception of the increases in mandated programs and public education, the proposed FY2010-2011 budget might well be described as a "status quo" budget, at least with respect to our expenditures. That is why I am confident that we can pass a balanced budget that I will sign, on time.

But there are three big risks in the budget that I want to go on record bringing to your attention. First, there is always the possibility that the economy could "tank" once again. The best evidence suggests that won't happen, but none of us has a crystal ball, and the reality is that there are no painless budget cuts left in this budget. Second, we are able to avoid deep cutbacks in our Medicaid funded services because we expect federal action before the summer that will increase the state's ability to cut Medicaid pharmacy costs. Absent this, I believe we will need to make cuts to our Medicaid budget. And finally, this budget is predicated on passage of the President's request to extend fiscal relief in the form of enhanced federal match for our Medical Assistance program - which means roughly $800 million more in temporary federal fiscal relief for the Commonwealth. Given that the expanded federal fiscal relief has already passed the U.S. House of Representatives, and the Smart Pharmacy plan has passed both the U.S. House and the Senate, our risk is not so great. But it's important to understand that federal assistance to the states is the only thing that makes it possible for us to avoid a massive tax increase, widespread layoffs and even deeper program cuts.

With help from Washington, our challenge to produce a balanced budget with no tax increase for the coming fiscal year is daunting but doable. As I said a moment ago, if you send me this budget I will sign it.

However, I strongly believe that we must do more to ensure the future well-being of the Commonwealth. A fiscal tsunami is coming at us, and I believe that we must act now to mitigate its impact.

In fiscal year 2012, which begins on July 1, 2011, federal stimulus funds totaling more than $2.3 billion will disappear. Even with a balanced budget for fiscal year 2011, the budget office projects that the loss of these funds will create a deficit of $2.4 billion for FY2012. And a year after that, the full impact of the 2001 pension increase legislation will hit us as well, creating a potential deficit of $5.6 billion.

Ladies and gentlemen, this is a reality that cannot be ignored. And the truth is, it is my duty as governor to do all that I can to protect and preserve the fiscal stability of the Commonwealth. I cannot, we cannot in good conscience allow these challenges to go unmet. Rather, we must face them head-on by developing strategies that allow us to honor our commitments and still keep Pennsylvania on a path for progress.

What I offer today is a comprehensive strategy to achieve these goals, a strategy that calls on us as elected leaders to make the long overdue changes to the state taxation system that will lower the rate and broaden the tax base and distribute the tax burden more fairly among all Pennsylvanians. I urge you to enact these changes this year, and put those funds into a newly created Stimulus Transition Reserve Fund that cannot be tapped until July 2011. This idea is similar to the Rainy Day Fund that was so successfully championed by former Governor Ridge and this Legislature, and the rationale is sensible: let us prepare today for storms to come. By acting now, we can successfully overcome the financial crisis that surely awaits us in the future.

We all know that we cannot make sufficient cuts this year or next to find our way out of this problem. All four caucuses already worked exhaustively last year to find cuts that we could live with, and our citizens could live with. We cut funds to all 67 counties, and they in turn have cut scores of programs and services. We've restricted hours at libraries and state parks across the state. Programs for the very sick are on life support, and so too are some key programs that protect our environment. Lack of available funding has caused the waiting list for child care to grow to more than 5,500, and the Adult Basic program waiting list is now at record levels.

The truth is, we've cut nearly to the bone, and while I know that we will certainly hear the familiar political calls to simply cut spending as a way to balance the budget, I want everyone to be on notice that I will challenge anyone who makes such a claim to specifically identify the cuts they propose, and explain the real implications for everyone to examine. When it comes to addressing the serious challenges that lay ahead, talk is the only thing that's cheap.

I want to be crystal clear on this point: the Stimulus Transition Reserve Fund that I propose would be legally inaccessible until July 2011 - well after I am no longer governor. None of the revenues generated by my proposal will be available for me or anyone else to spend this fiscal year or next. Instead, we will put these funds aside to prepare for the challenges ahead.