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Pennsylvania predicting $500 million deficit, no tax increase

By Mark Shade

HARRISBURG, Pa (Reuters) - As Pennsylvania slogs its way through a bad economy, officials predicted on Tuesday that the commonwealth would end its fiscal year next June with at least $500 million in debt.

However, state Budget Secretary Charles Zogby said Republican Governor Tom Corbett is not talking about tax increases to level its 2012-13 spending plan. Pennsylvania's constitution prohibits budget deficits from being carried into the new fiscal year.

"I am not working under the assumption that I have other revenue options," Zogby said.

State revenue collections are $345 million below estimates, as of November. Corporate tax collections are running 18 percent, or $167 million, lower than what the administration was hoping to collect.

It is possible, Zogby said, that Pennsylvania could be more than $1 billion in debt to start the new fiscal year because of mandated state and school employee pension, medical assistance, and debt service costs that today could cost $1 billion.

Zogby said the state is looking now at freezing a percentage of agency budgets to come up with the $750 million that would balance this year's budget and soften the blow of another deficit. Pennsylvania's deficit in 2011-12 was $4.1 billion.

"These are very difficult times with very difficult choices in front of us. All of the easy things, the low-hanging fruit has been picked," Zogby said.

Zogby expressed his disappointment that Washington has not extended the federal payroll tax holiday and emergency unemployment benefits. He also said the administration is concerned about a 0.3 percent increase next month in unemployment compensation loan repayments, the ongoing economic crisis in Europe, and uncertainty over the amount of available federal funding to states.

He said the state's financial position and liquidity remain historically weak and "will likely deteriorate" if monthly revenue shortfalls continue.

Still, he said he hopes economic conditions improve.

"But I can't balance a budget on wishes. I have to do it on reality. And the reality is it's not looking very good," Zogby said.

Governor Corbett will deliver his budget proposal to the state House and Senate in February.

(Editing by Jerry Norton)

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