Budget Secretary Charles Zogby Wednesday said the Corbett Administration is projecting the need to fill a $1.7 billion hole in the FY 2014-15 budget caused by the usual budget drivers-- increases in state and school employee pension payments, medical assistance costs and at the Department of Corrections.

The Budget Office expects FY 2013-14 revenue estimates to be “on-track” which will result in a $232 million surplus for the year ending June 30.

Pension payments for state and school employees are expected to increase about $610 million for the coming fiscal year.

Secretary Zogby said the Governor is particularly worried about the “tsunami” of pension payment increases coming for school districts and their potential impact on students in the classroom.  He said discussions continue with the General Assembly on pension reform and he said he believes they are on a “path to see positive developments” in time to impact the FY 2014-15 budget discussions.

In addition to the usual increases in medical assistance costs, Secretary Zogby said changes in the way the federal government calculates payments to the state for these costs will cut the state’s federal payments by an extra $300 million next year.

He also explained an added budget concern is the $180 million loss of tobacco settlement money as a result of a recent adverse decision by the panel overseeing the settlement agreement.  He noted those monies were expected in the Spring and have already been frozen in the current year budget.

He said the enactment of Small Games of Chance changes were a positive development in the state’s revenue picture.  These changes are estimated to bring in about $156 million in new tax revenue to the Commonwealth.

He also pointed to the $2.3 billion bipartisan transportation funding package approved in November as a significant improvement in funding for transit systems and highway and bridge projects.

The funding plan will increase the 2014 tax on gasoline to 40.7 cents per gallon, an increase from 31.2 cents per gallon in 2013, and 51 cents per gallon for diesel fuel, an increase from 38.1 cents per gallon in 2013.

Secretary Zogby said the Governor issued instructions to agencies to present a budget for next year with level funding, but which will actually result in an 8 percent cut due to increases in pension and salary expenses.

He said his Office is looking at all options for bringing in new revenues, short of new taxes.

When asked about adopting a new severance tax on natural gas production, Secretary Zogby noted the existing drilling impact fees are bringing in substantial revenues to local and state government and a new tax is not part of the mix of options being considered.

On slowing down the phase-out of the Capital Stock and Franchise Tax, Secretary Zogby said no options are off the table and said this issue was part of the discussion for the FY 2013-14 budget.  However, he said he would not be reacting to individual options before the Governor has an opportunity to review them.

Click Here for a copy of Secretary Zogby’s mid-year budget briefing presentation.

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12/23/2013