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Pennsylvania lawmakers pass budget but not pension reform

By Michael Sadowski

Harrisburg, Pennsylvania- (Reuters) - Pennsylvania Governor Tom Corbett signed a nearly $28.4 billion budget for fiscal 2014, which starts on Monday, but lawmakers declined to take action Sunday on a controversial public pension bill until fall.

The inaction on Corbett's plan to reduce the state's $47 billion-and-growing public pension shortfall is expected to lead to credit rating downgrades and higher borrowing costs.

A report by Moody's Investors Service last week ranked Pennsylvania the eighth-worst among all U.S. states as measured by pension liabilities to revenues, while the so-called yield spread over triple-A-rated bonds paid on Pennsylvania bonds rose about a third since January.

Moody's rates Pennsylvania at Aa2 with a stable outlook. Fitch Ratings said in April that it would decide whether to cut its AA-plus rating on Pennsylvania after reviewing the budget enacted for fiscal 2014.

The legislature also did not pass Corbett's proposals to privatize state-run liquor stores and hike taxes and fees to fund a $2 billion transportation package, two items that lawmakers are also expected to reconsider in the fall.

For Corbett, a Republican up for re-election in 2014 who has trailed potential Democratic challengers in recent polls, the apparent failure of his three-pronged agenda in a legislature led by his own party is a test of his leadership.

"We made progress on all these things. Things are grinding ahead, just couldn't pull them all together," House Speaker Sam Smith told the Pennsylvania Independent.

The 111-92 budget vote in the Pennsylvania House ended three hours before the beginning of the new fiscal year.

House Majority Leader Mike Turzai called it a "compassionate budget" that was responsible to both taxpayers and those who receive state funding.

The budget for fiscal 2014 is a 2.3 percent, or $645 million, increase over the current year's spending plan. It was also $64 million less than Corbett proposed in February.

(Reporting by Michael Sadowski in Harrisburg and Hilary Russ in New York; Editing by Stacey Joyce)

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