HARRISBURG -- Gov. Ed Rendell has begun implementing a plan to fill a $282 million hole in the 2010-11 budget, a move that calls for an across-the-board cut in departmental spending, the layoffs of 100 state workers by early September and enactment of a severance tax on natural gas.

Exactly which workers and departments will be affected by the layoffs hasn't been determined, Mr. Rendell said at a news conference Wednesday. And while any layoffs are painful, he said he was glad the number isn't near the 12,000 potential layoffs he forecast three weeks ago.

Mr. Rendell said he has the authority to implement a two-phase budget reduction plan that he had outlined to legislative leaders last week.

He expects to save $212 million by making a 1.9 percent cut in the budgets of dozens of agencies that he controls. He's also calling on the state House and Senate and state courts, as well as independent agencies that he doesn't control, to cut their 2010-11 spending by the same amount.

Those agencies include the Pennsylvania Higher Education Assistance Agency, the state Ethics Commission, the state Health Care Cost Containment Council and the offices of certain elected officials, such as the attorney general, the state treasurer and the auditor general.

In addition, he wants the Legislature -- by Oct. 1 -- to enact a new severance tax on the natural gas being pumped from the vast areas of underground Marcellus Shale in the state. He expects to raise $70 million in new revenue from that levy, although the details of exactly how the tax would work, and how high the tax rate would be, aren't known yet.

Marcellus Shale drillers and their new lobbyist, former Gov. Tom Ridge, could have a say on when, or whether, the tax is enacted. Opponents of the tax say they fear it could stifle development of a major new drilling industry, which could bring thousands of new jobs to the state.

If the shale tax isn't enacted by early October and thus doesn't start producing revenue -- or if the independent agencies don't trim their spending by 1.9 percent -- the full $282 million needed to balance the budget won't be achieved and additional layoffs might be needed.

Besides the $70 million in revenue for the state, the shale tax might provide additional revenue for municipalities whose roads and land areas are affected by the drilling and for state agencies that regulate the drilling companies.

Senate Republican spokesman Erik Arneson said Wednesday that leaders are "reviewing the options" for trimming Senate spending by 1.9 percent. House officials couldn't be reached.

Mr. Rendell hopes to save $50 million by reducing -- to $200 million -- the additional state funds for basic education programs in the state's 500 school districts. Letters will be sent this week to each district specifying how much additional money each one will get.

When he proposed a 2010-11 budget in February, Mr. Rendell wanted to give districts $354 million in additional basic ed funds. By the time the budget was adopted in early July, that figure was trimmed to $250 million, and now the final figure is down to $200 million. He said he understands the changes are causing difficulties as school districts prepare for the new school year.

Mr. Rendell said he rejected a request by Senate Republican leaders to shift the additional $200 million for schools to future pension costs. He said that if Senate Republicans are truly concerned about pension costs, they should approve a bill the House already has approved to reduce pension costs for future state and school district employees.

Mr. Arneson said there could be a Senate vote this fall on the House-passed pension bill. But even if it passes, he said, pensions for retired state employees and retired public school employees "will still be underfunded by billions of dollars." The higher tab for pension costs will likely come due by mid-2012.

Mr. Arneson said that because Congress recently gave Pennsylvania extra money for education as well as for Medicaid, it is "fiscally irresponsible" not to make "a $200 million down payment on the pension problem."

The main reason for the budget hole is that Congress didn't approve the full $850 million in extra Medicaid funding that state officials were counting on when they adopted the $28 billion budget in early July. Congress had originally talked of providing $23 billion nationally in additional Medicaid funding, but that was reduced to $16 billion, so each state's allotment had to be cut.

Mr. Rendell had said there could be as many as 12,000 layoffs in Pennsylvania if Congress didn't provide any additional Medicaid funds. Pennsylvania ended up getting about $600 million.

Another factor that reduced the number of layoffs is that about 5,000 state workers have decided to retire this year, instead of the usual 3,000, he said. In Mr. Rendell's eight years as governor, the total state workforce has dropped from 81,600 to 76,800.

By Tom Barnes

HARRISBURG -- Gov. Ed Rendell has begun implementing a plan to fill a $282 million hole in the 2010-11 budget, a move that calls for an across-the-board cut in departmental spending, the layoffs of 100 state workers by early September and enactment of a severance tax on natural gas.

Exactly which workers and departments will be affected by the layoffs hasn't been determined, Mr. Rendell said at a news conference Wednesday. And while any layoffs are painful, he said he was glad the number isn't near the 12,000 potential layoffs he forecast three weeks ago.

Mr. Rendell said he has the authority to implement a two-phase budget reduction plan that he had outlined to legislative leaders last week.

He expects to save $212 million by making a 1.9 percent cut in the budgets of dozens of agencies that he controls. He's also calling on the state House and Senate and state courts, as well as independent agencies that he doesn't control, to cut their 2010-11 spending by the same amount.

Those agencies include the Pennsylvania Higher Education Assistance Agency, the state Ethics Commission, the state Health Care Cost Containment Council and the offices of certain elected officials, such as the attorney general, the state treasurer and the auditor general.

In addition, he wants the Legislature -- by Oct. 1 -- to enact a new severance tax on the natural gas being pumped from the vast areas of underground Marcellus Shale in the state. He expects to raise $70 million in new revenue from that levy, although the details of exactly how the tax would work, and how high the tax rate would be, aren't known yet.

Marcellus Shale drillers and their new lobbyist, former Gov. Tom Ridge, could have a say on when, or whether, the tax is enacted. Opponents of the tax say they fear it could stifle development of a major new drilling industry, which could bring thousands of new jobs to the state.

If the shale tax isn't enacted by early October and thus doesn't start producing revenue -- or if the independent agencies don't trim their spending by 1.9 percent -- the full $282 million needed to balance the budget won't be achieved and additional layoffs might be needed.

Besides the $70 million in revenue for the state, the shale tax might provide additional revenue for municipalities whose roads and land areas are affected by the drilling and for state agencies that regulate the drilling companies.

Senate Republican spokesman Erik Arneson said Wednesday that leaders are "reviewing the options" for trimming Senate spending by 1.9 percent. House officials couldn't be reached.

Mr. Rendell hopes to save $50 million by reducing -- to $200 million -- the additional state funds for basic education programs in the state's 500 school districts. Letters will be sent this week to each district specifying how much additional money each one will get.

When he proposed a 2010-11 budget in February, Mr. Rendell wanted to give districts $354 million in additional basic ed funds. By the time the budget was adopted in early July, that figure was trimmed to $250 million, and now the final figure is down to $200 million. He said he understands the changes are causing difficulties as school districts prepare for the new school year.

Mr. Rendell said he rejected a request by Senate Republican leaders to shift the additional $200 million for schools to future pension costs. He said that if Senate Republicans are truly concerned about pension costs, they should approve a bill the House already has approved to reduce pension costs for future state and school district employees.

Mr. Arneson said there could be a Senate vote this fall on the House-passed pension bill. But even if it passes, he said, pensions for retired state employees and retired public school employees "will still be underfunded by billions of dollars." The higher tab for pension costs will likely come due by mid-2012.

Mr. Arneson said that because Congress recently gave Pennsylvania extra money for education as well as for Medicaid, it is "fiscally irresponsible" not to make "a $200 million down payment on the pension problem."

The main reason for the budget hole is that Congress didn't approve the full $850 million in extra Medicaid funding that state officials were counting on when they adopted the $28 billion budget in early July. Congress had originally talked of providing $23 billion nationally in additional Medicaid funding, but that was reduced to $16 billion, so each state's allotment had to be cut.

Mr. Rendell had said there could be as many as 12,000 layoffs in Pennsylvania if Congress didn't provide any additional Medicaid funds. Pennsylvania ended up getting about $600 million.

Another factor that reduced the number of layoffs is that about 5,000 state workers have decided to retire this year, instead of the usual 3,000, he said. In Mr. Rendell's eight years as governor, the total state workforce has dropped from 81,600 to 76,800.

Bureau Chief Tom Barnes: tbarnes@post-gazette.com or 717-787-4254.

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