Sept. 19 (Bloomberg) -- Pennsylvania Governor Ed Rendell and lawmakers reached an agreement on a $28 billion state budget yesterday, ending a months-long impasse that left it the only U.S. state without a permanent spending plan.

“I apologize to the people of Pennsylvania,” said Rendell, a Democrat, from the state capital in Harrisburg. They “have benefited from this, but we’ve subjected them to a lot.”

The plan cuts state spending by $400 million from last year. To increase revenue, the deal would authorize wagering on table games such as blackjack and poker at the state’s slots- only casinos. It also calls for a 25-cent increase in the $1.35 per-pack cigarette tax.

Rendell and lawmakers had disagreed over how to close a $2.7 billion deficit for the fiscal year that began July 1, causing the almost three-month stalemate. Legislators rejected his proposal to raise the state’s income tax rate to 3.57 percent from 3.07 percent to close the gap.

The governor said yesterday the budget proposal contains a $300 million increase in education spending. He said the inclusion of federal stimulus funding allowed the overall size of the budget to drop by about $2 billion.

“We’re delighted to have a budget finally,” said House Speaker Keith McCall, who joined Rendell and Senate leaders at a news conference announcing the budget. The plan is balanced in a “fiscally and morally responsible” way.

Narrowing the Gap

Pennsylvania has been unable to issue as much as $1.5 billion in general obligation debt to expand its convention center in Philadelphia and fund prison construction due to the impasse. The state has so far withheld about $1.3 billion in payments to local schools, prompting several to turn to short- term borrowing to make up for the missing money.

The governor had said earlier he would veto legislative proposals because a series of plans put forth by legislators were as much as $1.5 billion out of balance this year and the next. By Thursday night, Rendell and lawmakers said the gap between their positions had narrowed to less than $300 million.

Pennsylvania state law requires the governor and lawmakers to balance the budget each year.

Senate Majority Leader Dominic Pileggi, a Republican from Chester, said the budget and accompanying legislation still need to be crafted and final passage is a week to 10 days away.

“There’s a fair amount of nuts and bolts that needs to go on,” he said.

To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net.

Last Updated: September 19, 2009 00:00 EDT