The 2009-10 budget season will officially get underway when Gov. Ed Rendell delivers his budget address before a joint session of the Pennsylvania House and Senate on Wednesday, Feb. 4.

The governor's speech will provide insight into how the administration proposes to continue addressing a revenue shortfall that all parties agree could reach $2.3 billion by the end of the fiscal year. (As of January, the budget deficit stands at $1.1 billion.)

The Pennsylvania Chamber recognize the difficult choices that lawmakers will be forced to make in crafting a spending plan for the state during this economy, but remain committed to advancing policies that will help business, not further jeopardize job creation or Pennsylvania's already lackluster economic performance.

To that end, the PA Chamber is guarding against potential attempts to adopt Mandatory Unitary Combined reporting in order to generate revenue for the state. It is far from a certainty that $400 million would be generated and in fact, implementing this change would likely result in a decrease in revenue as the Commonwealth and business taxpayers litigate over what is to be taxed. Beyond that, a Council on State Taxation study noted that it is difficult to predict the revenue impact of combined reporting, although the study was clear that economic theory and modeling suggest that combined reporting would lead to reduced investments and jobs at a time when Pennsylvania can least afford it (and when the state's Gross Domestic Product is already growing at only half of the rate of the national average).

The PA Chamber and other members of the CompetePA Coalition are calling on state leaders to implement a program that will allow Pennsylvania to retain jobs and stimulate new job creation while weathering the current economic crisis.

The group issued a press release this week outlining business tax reforms that will strengthen Pennsylvania's job creators.

CompetePA is urging lawmakers to base the Corporate Net Income tax apportionment formula on 100 percent sales. The current formula is 70 percent sales; 15 percent payroll; and 15 percent property. Adopting a Single Sales Factor would encourage employers to increase their economic investment in their Pennsylvania plants and equipment.

The group also supports the elimination of the cap on Net Operating Loss (NOL) carryforwards. The amount of loss businesses can currently claim for tax purposes is $3 million or 12.5 percent of taxable income.

"There are many fundamental changes that can be made to our business climate to encourage business growth and job creation, particularly in this precarious economic climate. A change in NOL policy is among them," said Gene Barr, PA Chamber vice president of government and public affairs. "Cyclical businesses and start-up companies are particularly vulnerable in a volatile economy. This change will enable more job creators to ride out the current economic downturn rather than close their doors. This should be the goal of all decisions made by elected officials this budget cycle."

Now more than ever, Pennsylvania needs to take steps to not only help employers retain jobs and keep their facilities open for business, but to encourage job creation.

Other states have already recognized that bold steps are needed to spur economic growth during these challenging economic times. Last week, in order to help cut a $4.85 billion budget deficit, Minnesota Governor Tim Pawlenty proposed that the state cut its corporate net income tax rate in half, from 9.8 percent to 4.8 percent over a six-year period, and give businesses a series of tax credits and exemptions that would allow them to expand and create jobs.

And New Jersey believes it can accomplish this goal through the enactment in December 2008 of tax credits for job creation and a temporary waiver of the state's 7 percent sales tax on capital investments.

In Pennsylvania, eliminating the restrictive cap on net operating losses and adopting a Single Sales Factor will go a long way toward improving the Commonwealth's economic performance now, and better position the state competitively during recovery.