Gov. Ed Rendell said school property taxes will "go through the roof" within the next several years unless the Legislature takes dramatic, painful steps to pay for rising public pensions costs.

"We can get out of this budget with no tax increase, no more spending cuts, and we can go home," Rendell said. " … Everyone would be happy — but it would be a disastrous thing for Pennsylvania because we would absolutely be sticking our heads firmly in the sand."

Pennsylvania's governor, in the final year of his second and last term in office, said the state faces a potential $5.6 billion deficit by 2013 largely because of the public pension boom, the increasing costs of housing prisoners and the rising number of people enrolling in Medicaid.

And the General Assembly, he said, must confront the issue this year — an election year — by generating revenue or risk more serious financial problems in two to three years.

"Do we have the courage to do it? I hope we do," Rendell said at a Friday afternoon appearance at Filling's, an upscale clothier across from Franklin & Marshall College in Lancaster.

In stops here and across southcentral Pennsylvania, Rendell said his plan to reduce the state sales tax and expand it to nearly every item but food, clothing and pharmaceuticals is a "can't-miss proposition" that will raise $1.5 billion in the next two fiscal years.

Combined with a series of other measures — closing the state's notorious Delaware Loophole and taxing cigars and smokeless tobacco, as well as taxing drilling in the Marcellus Shale regions — the state could generate some $2.5 billion by the time the stimulus money dries up.

But the proposals face stiff opposition from Republicans, especially in the Senate, and some Democrats, a fact Rendell readily acknowledges.

"The Senate Republicans may pass none of this," he said, "because their caucus' mantra is 'no taxes under any circumstances.' And what will happen is this: Whoever the governor is and whoever the Legislature is will have to raise taxes. No question.

"But they won't raise enough taxes. They'll make some illusory cuts, and they'll pass the tax burden to the local property tax," Rendell said.

Rendell said his proposals are necessary to offset the escalating costs of public pensions as a result of the 2001 increase in retirement benefits, approved by Republican Gov. Tom Ridge and the Legislature.

The bill, signed into law by Ridge at a time when the economy was strong, boosted the taxpayer-funded pensions for lawmakers by 50 percent and for school employees by 25 percent.

"The 2001 pension bill that Governor Ridge and the Legislature collaborated on is a huge disaster — maybe the most damaging piece of legislation this state's ever had," Rendell said.

This year, taxpayers are paying $561 million in public pension costs, the governor said. In the next fiscal year, which begins on July 1, they will be forced to spend $900 million — and the costs will continue to rise dramatically in following years.

The revenue in Rendell's plan would remain untouched until July 1, 2011, when Pennsylvania begins to feel the combined impact of the loss of federal stimulus money and the sharply increased pension costs. The state faces a projected deficit of $2.5 billion in the 2011-12 fiscal year, and of $5.6 billion the year after that.

In addition to his plan to reduce the state's 6 percent sales tax to 4 percent and add 70 now-exempt items to the list of taxable items, Rendell is proposing to:

• Tax energy companies drilling in the Marcellus Shale regions of Pennsylvania.

• Tax cigars and smokeless tobacco.

• End the vendor sales discount of 1 percent, a tax break some 300,000 retailers now get for paying their sales taxes on time to Pennsylvania.

• Close the so-called "Delaware Loophole," which allows 71 percent of companies doing business here to avoid paying the 9.9 percent corporate net income tax because they do business in other states. Rendell would also reduce the CNI tax to 8.9 percent.

Rendell's sales-tax proposal is similar to one proposed several years ago by some House Republicans, though theirs would have directed the revenue directly to local property tax reductions. Rendell says his plan would eventually do the same.

Republicans, and some Democrats, oppose the plan — including some candidates for governor.

"When you hear the political candidates — both Democrats and Republicans — say, 'We don't have to raise taxes. We can do it by cutting the budget,' there's no way they can do it by cutting the budget," Rendell said.

Both Republican candidates for governor, front-runner Tom Corbett and primary opponent Sam Rohrer, have signed pledges not to raise taxes. And Corbett, the state's attorney general, told Republican State Committee people last month that the state should cut spending.

Rendell, speaking of Corbett, said: "I see that the leading Republican just signed a no-tax pledge. He needs to have his head examined."

Rendell said Corbett and Rohrer should be challenged on their pledges.

"One of the things I think the media should do is, when someone says that, say, 'Where? Tell us where you're going to cut and what the consequences of that should be. If you're going to cut the Department of Conservation and Natural Resources 20 percent, what parks are you going to close? The citizens have the right to know. What museums and what scenic outposts are you going to close?' " Rendell said.

tmurse@lnpnews.com