State Sen. Gib E. Armstrong has heard the criticism, mostly from his Republican colleagues in the state House, that the new state budget is too costly for taxpayers.

But, the Senate Appropriations Committee chairman said last week, it's a step in the right direction — in the direction of fiscal restraint.

And next year, he said, he intends to push for a tax cut — a reduction in the personal income tax.

Armstrong, R-13th District, last week defended the $27.5 billion deal that he helped negotiate with Democratic Gov. Ed Rendell in the face of GOP discontent over the rate of growth of state government.

If you subtract the two categories that are driving state spending highest, he argued, the general fund is decreasing 1.1 percent over last year.

Funding for the Agriculture Department, which some local Republicans had charged was cut, is up from $140 million last year to $147 million.

"Everybody wants the budget to shrink and not go up," Armstrong said. "However, they want increases in different areas.

"It's hard to do that."

Rep. Scott Boyd, R-43rd District, one of the critics, reiterated his dissent, as did Reps. Gordon Denlinger, R-99th District, and Tom Creighton, R-37th District.

"No matter how it's packaged, this budget exceeded the rate of inflation," Boyd said.

"We blew a $650 million surplus and ballooned the budget past inflation by almost $750 million. To me, that is $1.4 billion that should have been used for tax cuts."

But with a Democratic governor and Democratic majority in the House, Armstrong said, getting a budget deal isn't so simple.

"We know we couldn't turn this thing around in one year," he said.

Drawing a line
For the last six months, Armstrong has been reiterating his argument that the growth in state spending during the Rendell years, more than 7 percent annually, isn't sustainable.

Armstrong said he voted against last year's budget because of its 7.4 percent increase.

"We've cut that in half," he said.

This year, his first as Appropriations chairman in the Republican-held Senate, he was one of the key figures in negotiating with Rendell, who wanted seven new or increased taxes to fund an ambitious agenda of health care, energy and transportation initiatives.

"We feel good," Armstrong said. "Seven taxes proposed, and the governor got none of those. We've held the line."

The budget increases general fund spending 4.4 percent, with a new mass transit program included. With the $317 million for transit transferred to the separate transportation fund, the increase is 3.2 percent.

In a statement, Rendell said the average state budget nationally grew 6.7 percent this year, and 70 percent of Pennsylvania's added spending went for education.

Since the deal was adopted July 16, more than two weeks past the deadline, some Republicans have been arguing that the line wasn't held firmly enough.

All the Republicans in the House delegation voted against the budget.

"While a 'no tax increase' budget represents a win for the Republican side, the surplus we had going into negotiations represented a tremendous opportunity to restructure our tax system in ways that would have made Pennsylvania an economic leader among states," Denlinger said.

"This was the year we should have addressed our property tax school funding problem and reduced our corporate tax rate, which is the second highest in the nation. I consider this year's budget a missed opportunity in many ways."

"We have a $650 million surplus, which should have been returned to the taxpayer," Creighton said.

Boyd said the $650 million should have been used to cut property or personal income taxes.

Armstrong, though, said the budget is a good start toward slamming the brakes on what Republicans see as out-of-control spending.

Two major programs are pushing the budget higher, he said: Education, which grew 5.8 percent in the new budget, and medical assistance, which accounted for the biggest chunk of the Department of Public Welfare's 3.7 percent increase.

"Everything else, on average, in the general fund got minus 1.1 percent," he said.

"... You can only cut elephants where elephants live. Right now the elephants are education and the Department of Public Welfare."

The budget included a $15 million increase for a popular program that allows businesses to claim tax credits for donations to parochial and some public schools, Armstrong pointed out.

"If we are worried about the big drivers like education," Boyd countered, "why did we hand Rendell $195 million for new education initiatives while only providing $166 million more for basic ed? If we are serious about education and serious about cutting property taxes, let's adequately fund basic education."

The state put more than $150 million of the $650 million surplus into its Rainy Day Fund, Armstrong noted, and agreed to fund the state pension program by 4 percent, trying to forestall a projected 18 percent pension contribution in 2012.

Cut education funding, Armstrong said, and local property taxes wind up being raised. Most of the medical assistance increase is for nursing home care for senior citizens.

"We have to get a handle on it," he said. "But talking about it and doing it are two different things."

Credit on credits?
Two of the biggest targets of local GOP budget backlash are agriculture funding and a tax credit program for films made in Pennsylvania.

Creighton argued that if a new $10 million tax credit called REAP is subtracted from the Agriculture Department, ag funding dropped $4 million.

Armstrong pointed out that Rendell's draft budget slashed nearly $8 million from the Agriculture Department. The department finally got a 5 percent increase over last year's budget and 10 percent over Rendell's proposal, Armstrong said.

The other sore point is $75 million in tax credits for filmmakers, a last-minute condition that Rendell wanted.

Armstrong said filmmakers would be able to qualify for $25 million worth of tax credits this year. He said budget negotiators got the governor to drop about $25 million worth of grants and sales tax exemptions for movies made here in return for the credits.

"I saw the impact 'Witness' and some of the other [movies] had in Lancaster County," Armstrong said. "If you can produce a movie in Pennsylvania … the implications and the spinoff are just amazing. We're still making money off 'Witness' in Lancaster."

Boyd, though, said $25 million for movies vs. $10 million for REAP isn't an equal exchange.

"Probably the worst thing done," he said, "was putting the behemoth Turnpike Commission on growth hormones, giving them the authority to borrow $11 billion to fund road, bridge and mass transit," with borrowings paid back through higher Turnpike tolls and new tolls on Interstate 80.

"Why should your turnpike toll be used to fund Philadelphia mass transit?" Creighton asked.

Armstrong, though, sees this year's budget as part of a two-year process of reining in spending.

"I can guarantee you that [in] next year's budget there will be no tax increase, unless there's a catastrophe," he said. Partly that's because it's an election year for all House members and for a third of the Senate, including Armstrong.

"I'm looking seriously at initiating a cut in the personal income tax," he said, which is now 3.07 percent.

Armstrong hopes to propose lowering the rate to 2.7 or 2.8 percent.

"Like I said six months ago, there'll be no tax increases this year," he added.

"I meant it."