Pennsylvania State Budget
The Independent Fiscal Office (IFO) released a sober analysis of Gov. Wolf’s 2016-17 budget proposal. It examines the consequences of eight separate tax increases as well as a minimum wage hike. The 35-page analysis can be summarized in four major points.
1. Higher middle class taxes than New Jersey. The IFO produced hypothetical scenarios for families in 12 states to demonstrate the impact of the governor's 11 percent personal income tax (PIT) hike. A Pennsylvania family making $50,000 will pay higher taxes than the same family living in New Jersey and five neighboring states.
Proponents of a PIT hike emphasize the current rate is one of the lowest in the country. While true, it does not account for the fact that Pennsylvania's rate is among the highest for low-income families, and that the PIT does not exist in seven states.
2. The highest severance tax rate among major gas-producing states. If the governor gets his way, Pennsylvania’s gas industry would pay a 5.6 percent severance tax. The tax would be imposed in addition to the taxes gas companies already pay.
Supporters of a severance tax insist wealthy gas companies need to pay their “fair share.” But this punitive tax will also fall on people who depend on the natural gas industry for their livelihoods. A slew of jobs have already been lost as natural gas prices remain at 20 year lows.
3. The 10th highest state cigarette tax rate in the country. Philadelphia’s tax rate would be 2nd only to New York. Cigarette taxes affect a narrow population and garner more support than broad based taxes. However, cigarette taxes disproportionately affect the poor and encourage violence stemming from smuggling. In 2014, Philadelphia implemented a $2 tax on cigarettes. The tax drove Philadelphia residents to purchase cigarettes in nearby counties, which hurt small businesses in the city.
4. A minimum wage hike would erase nearly 30,000 job opportunities. The IFO predicts raising the minimum wage from $7.25 to $10.10 an hour would boost the incomes of some workers. However, the new mandated minimum wage would also force layoffs and slow hiring.
Everyone wants to reduce poverty, but forcing businesses to increase wages will harm the very people the policy is intended to help. Those with little work experience or education will find it more difficult to land that first job. For example, teenage unemployment rates are consistently higher in states with higher minimum wages.
All of Governor Wolf's proposals have one thing in common: They concentrate more money and power in Harrisburg. Yet, job growth and economic prosperity come from innovative people in the private sector, not from a large and removed state government.
Late on Friday afternoon, Gov. Tom Wolf quietly announced the fiscal code will become law without his signature. This significant development closes the door on a tumultuous year of state budget politics—and represents an important victory for public and private school children.
Just last month Wolf opted to veto the fiscal code, which included a fair funding formula for education spending, language authorizing businesses to receive tax credits for their donations to private school scholarship organizations, and state funding reimbursing school districts for construction and renovation costs.
Lawmakers responded to the governor's veto by passing a stripped-down version of the fiscal code—this time with strong bipartisan support and veto-proof majorities. Apparently Wolf saw the writing on the wall and decided to refrain from yet another veto.
Thanks to passage of the fiscal code, education spending above 2014-15 levels will be distributed through a rational formula that accounts for student enrollment. This formula includes recommendations presented by CF in testimony to the Basic Education Funding Commission.
Ideally, the formula would apply to the entire Basic Education line item—not only the new education spending—but the fiscal code remains a step in the right direction. Certainly, the formula is an improvement over Wolf’s preferred funding scheme which funneled millions to Philadelphia, Chester-Upland, and Wilkinsburg at the expense of 423 other districts.
Further, the finalized fiscal code allows businesses that made donations to the state’s popular scholarship tax credit programs to utilize their tax credits in either 2015 or 2016. Recall that last year the Wolf administration put a freeze on the scholarship programs—claiming student hostages and causing confusion for participating businesses. The technical amendment in the code will reduce administrative headaches for businesses and allow more students to receive scholarships.
A no-tax increase state budget, combined with a fiscal code that protects students, is a crucial victory for families and businesses in the commonwealth.
As Pennsylvania inches closer to another budget battle, you’re likely to hear the term “structural deficit” used more often.
The term is defined as a multi-year shortfall between projected spending and revenue figures. Projected is emphasized because neither the spending or revenue figures are set in stone. They are estimates from the Independent Fiscal Office (IFO) that assume lawmakers make no changes to state programs.
The IFO estimates assume state government will carry over all spending from the prior year. They also include new costs associated with inflation, public employee compensation, and an increase in the service population.
Essentially, the IFO produces estimates for a budget running on autopilot. No extensive review of programs exists on an annual basis. How can working Pennsylvanians be expected to pay higher taxes when state budgeting permits spending to grow largely unchecked?
Moreover, tax increases could prove counterproductive. They may exacerbate Pennsylvania’s already high tax burden, thereby hindering job growth and driving more residents out of the state.
Fewer taxpayers depress revenue collections, making it harder for lawmakers to balance the state’s books—especially if spending programs are left unreformed. Just ask residents of New Jersey, who are now facing a budget deficit simply because one wealthy individual moved out.
To avoid this nightmare scenario, a rigorous review of the nearly $76 billion state budget is needed. CF has already identified a list cost-savings measures which would redesign government to help keep state and local budgets in balance.
Government must utilize every dollar it has before taking more from taxpayers. Anything less would be a disservice to the people who work hard everyday to make sure their own budgets are balanced.
The state budget impasse may be over, but Pennsylvanians are still reeling from Gov. Wolf’s budget vetoes.
The Times-Tribune reports the Women’s Resource Center of Scranton, which serves domestic violence victims, couldn't fill three open positions during the impasse and has paid thousands of dollars in interest fees on a line of credit.
School districts did not escape unscathed either. According to the Auditor General’s office, districts borrowed $1 billion and incurred $40-$50 million in interest and fees. The totals could be higher when the office issues a new report on borrowing costs later this month.
Acknowledging the needless disruptions causing headaches around the state, the governor approved some funding back in December, saying, “We're now at a point where I don't want to hold the children of Pennsylvania hostage...." But the damage was done.
Logos Academy, a private school serving primarily low-income kids in York, was forced to start a fundraiser to replace the funds they lost as a result of the governor’s indefensible delay of EITC scholarships.
Unfortunately, under current law, politicians can use non-profits and schools as leverage to advance their political agenda. This needs to end. People should not be used as political pawns.
Before 2016-17 budget negotiations heat up, lawmakers should prioritize one of the following bills to protect Pennsylvanians from the consequences of another budget stalemate:
- HB 1410 – Provides appropriations based on the amounts authorized in the previous year’s budget.
- HB 232 – Amends Pennsylvania’s Constitution to provide appropriations based on the amounts authorized in the prior year’s budget.
- SB 807 – Authorizes funding for education on the payment schedule agreed to in the prior year. (A Senate committee passed SB807 on a bipartisan basis yesterday.)
- SB 326 – Amends Pennsylvania’s Constitution to require the state to maintain 80 percent of General Fund appropriations if a budget is not signed by the June 30 deadline.
- SB 1129 – Provides a monthly appropriation to the human services and education departments. Travel would be restricted while this law is in effect, and a moratorium placed on per diems and expense reimbursements.
In addition to protecting Pennsylvanians, these “default budget” options would prevent any governor from creating and using a budget crisis to ignore the Pennsylvania Constitution and state law.
When the Department of Corrections ran out of money to operate state prisons, Gov. Wolf requested spending above what was appropriated. Likewise, the administration distributed large amounts of education funding to a handful of struggling urban districts in direct violation of the law.
Governing on a whim is irresponsible, and if left unchecked, could set a precedent for future governors who believe the law is an inconvenience to be ignored rather than instructions to be followed.
If lawmakers don’t raise taxes, Pennsylvanians should brace for drastic cuts to education and human services. This myth is promoted endlessly by the Wolf Administration to justify taking more out of the pockets of working people.
The administration offers this false choice in the context of the state’s projected budget deficit, which admittedly has credit rating agencies worried. The agencies warnings shouldn't be ignored, but they also shouldn't serve as cover for increasing Pennsylvanians’ already high tax burden.
As Majority Leader Jake Corman pointed out last week, there are two ways to close a budget deficit: raise revenue or cut spending. The latter is preferable and possible without dramatically reducing funding for education and human services.
That’s not to say reforming the education and welfare systems is unnecessary. We need to rescue students from violent and failing schools. We need to fix a system that traps people in a cycle of poverty. However, these are not the only areas where reforms can help improve lives and save taxpayers' money.
Other areas ripe for reform include economic development or corporate welfare programs. CF has called for eliminating the almost $700 million in corporate welfare found in the operating budget. If a recent Independent Fiscal Office (IFO) report is any indication, the full cost of special subsidies is probably much higher.
The IFO's report on corporate welfare, or what they call economic development incentives, identified a number of programs not included in our corporate welfare tally. Here are just a few:
- Infrastructure Technology Assistance Program (Cost: $1,750,000) – Provides grants to Lehigh University to help the state and companies increase operating efficiency.
- Alternative Fuels Funding (Cost: $9,231,000) – Awards grants to cover the costs of installing, upgrading, retrofitting, or purchasing alternative fuel equipment, facilities or vehicles.
- Life Sciences Greenhouses (Cost: $3,000,000) – Funds biotech and medical device startups and helps connect them with investors and experts.
Should taxpayers continue to fund these programs when the state’s facing serious fiscal challenges? The governor believes so. And he is willing to break a major campaign promise to not only sustain corporate welfare spending but increase it.
Fortunately, the future isn't set in stone. We can change course and embrace an idea proven to raise the standard of living for billions of people. But it takes an act of will. Do we have it?
Pennsylvania’s nine-month budget saga has concluded, but not everyone is pleased with the ending. The Philadelphia Inquirer published a caustic editorial criticizing state lawmakers for failing to surrender to the governor’s unreasonable budget demands.
Rather than providing clarity, the partisan editorial adds to the mountain of misinformation casting a shadow over the budget debate. For example, the editorial board writes,
Gov. Wolf has succumbed to Republican obstruction and agreed to a plan that keeps the state in the fast lane toward fiscal instability and educational decline.
Far from being obstructionists, Republicans advanced numerous balanced budgets, liquor privatization, and pension reform. The governor is the one clinging to the status quo. His insistence on higher taxes and spending will chase more people out of the state, leaving fewer taxpayers to cover the growing costs of government. Does this sound like fiscal stability?
But tax increases are necessary, some say, to stave off educational decline. The truth is more complicated. No correlation exists between higher education spending and educational outcomes. Lack of funding is not the problem. Misplaced control is the problem. Pennsylvania’s educational system will improve when parents, not government officials, are in control of education.
The editorial continues:
Of the many disappointments of this budget, the greatest is its failure to address the state's structural deficit, the stark difference between the state's spending and receipts. This deepening hole, expected to approach $2 billion next year, is sapping the state's ability to function.
Leaving aside the hyperbolic ending, the board’s preferred plan does not eliminate the deficit despite including a $2.3 billion tax increase over two years. Furthermore, if the state is facing a deficit, adding billions in new spending makes little sense. Why add new bills if the state cannot pay its old ones?
In keeping with its partisan tone, the board writes,
That seems to be of no concern to the legislature's least reasonable Republicans, who can return to a never-ending campaign trail to gleefully proclaim that this budget raises no taxes. But the problem is that it does raise taxes. Local property taxes throughout the state are bound to rise because the state is failing to properly fund schools, leaving districts to make up the difference.
Leading readers to believe lawmakers have no alternatives to tax hikes is disingenous. Reforms like voter referendums, school choice, and mandate relief can ensure education funding, which is at record levels, is spent more efficiently.
Finally, the board attempts to paint the governor as a reasonable negotiator who can’t get anywhere with obstinate Republicans:
This budget doesn't address the looming pension crisis or reform the state's absurd grip on wine and spirits sales, supposed Republican priorities that, despite belated and begrudging concessions by the Democratic governor, remain as untouched as Wolf's agenda.
These “concessions” were token at best. Republican legislators preferred a pension plan that moved all new public employees into a 401k plan. The governor said no. On liquor, they requested complete privatization of the system. The governor said no.
After having their top two priorities rejected, the legislature still increased spending by more than $880 million, with $230 million added for education—the governor's top priority. Republican lawmakers passed these increases even though many preferred reductions in government spending.
Nevertheless, the 2015-16 budget impasse is history. Focus will now turn to the 2016-17 budget and lawmakers will have another opportunity to redesign government so that working people aren't harmed by the consquences of overspending.
After nine months of gridlock, Gov. Tom Wolf finally surrendered his 2015 quest for higher taxes on families and small businesses. On Monday morning, Pennsylvania will enjoy a completed state budget. Finally.
But the governor isn't putting down his veto pen.
Lost in yesterday’s headlines was Wolf's promise to veto the fiscal code, HB 1327, which provides instructions for spending state funds. In January, CF identified dozens of earmarks tucked away in the fiscal code, but the legislation was, on balance, a winner for jobs and students alike.
Lawmakers used the fiscal code to implement a fair education funding formula, protect private school scholarships, and authorize reimbursement for school construction costs. The fiscal code also pushed back against President Obama's energy tax on coal and expansive regulations on natural gas.
Chris Comisac at Capitolwire (paywall) explains Wolf's opposition:
The Fiscal Code bill also contained a new funding formula that would have been used to drive out the $150 million in added basic education funding and a $2.5 billion school construction borrowing plan. That borrowing plan would have delivered construction reimbursements, through the state’s PlanCon program, to school districts throughout the state that have been on a waiting list to receive that money.
Wolf spokesman Jeff Sheridan said the PlanCon borrowing also prompted Wolf’s veto, with Sheridan describing the plan being “prohibitively costly to issue due to inflated debt costs resulting from the lack of any concrete steps in the current budget to address the structural deficit.”
Sheridan’s response is strange, considering Wolf agreed to PlanCon borrowing as part of last year’s budget framework. In November, the administration was on-board with the school construction plan—and now, in March, they argue it will be “prohibitively costly.”
Setting aside the administration’s shoddy logic, districts awaiting PlanCon dollars will be on hold until a fiscal code is approved—yet another instance of Wolf refusing to release education funding.
In addition to construction costs, Wolf’s impending veto has implications for how much state funding each school district will receive. Kevin McCorry of NewsWorks has the details:
Because the fiscal code acts as a roadmap for how education money is divided, Republicans say that if Wolf follows through on that veto, he will effectively keep new spending in limbo.
"You can't spend that $150 million without a fiscal code," said Jenn Kocher, spokeswoman for Senate Republicans.
The Wolf administration disputes that, saying that it will unilaterally distribute funding "in the most appropriate manner possible."
Wolf certainly has experience unilaterally doling out education dollars—this is exactly what he did in January when he approved a partial-year state budget. At the time, Wolf thumbed his nose at a fair funding formula, instead funneling money disproportionately to school districts in Philadelphia, Chester-Upland, and Wilkinsburg.
This is precisely why a fiscal code is crucial—it restrains the governor from political gamesmanship and ensures fairness for all students in the commonwealth.
Pennsylvania's 267 day budget impasse has finally come to an end...with a taxpayer victory!
The $30 billion budget contains NO tax increases and spends an additional $200 million on education.
For nine months, lawmakers withstood immense pressure to raise taxes. Take a minute to thank your lawmaker for standing firm and recognizing there is no appetite for broad-based tax increases on Pennsylvanians.
CF President and CEO Matt Brouillette cheered:
Today is a victory for taxpayers who will be spared crushing tax hikes, for students and teachers who will get the funding they’ve been pleading for, and for all Pennsylvanians, who now have a budget that spends responsibly.
Attention now turns to Wolf's 2016-17 budget proposal, which calls for the largest spending increase in 25 years.
Follow the steps below to send a quick email to let lawmakers know that you appreciate the men and women at the Capitol that have stood strong for taxpayers this year.
Last week, Gov. Wolf indicated he plans to fully veto yet another budget. He said if schools face a “short term shutdown,” that could be “a good thing.”
Now, he’s realizing he's alone on that island.
Yesterday, Wolf said he will take a little more time “to further review the spending plan to make sure ‘it is as out of balance as I’ve been saying it is.’” That is, Gov. Wolf is not sure his rhetoric and internet memes are actually true. (For more on how this budget balances, check out my interview with Fox 43.)
More importantly, he’s getting a lot of pressure from House and Senate Democrats to back off and sign all or most of the budget (using a line item veto) to keep schools open. Likewise, school officials from across the state are calling on Wolf to end this gamesmanship.
If he insists on a veto, there may even be enough legislative support to override it, said Washington County Democrat Rep. Pete Daley.
It’s time to move this thing forward … I’m almost positive that if he vetoes it, we have enough Democrats to override his veto.
On the Senate side, Senator John Yudichak, a Luzerne County Democrat who voted against the budget last week, told the Times-Leader if Wolf vetoes the bill, he will vote to override.
As I pointed out last week, Wolf has little to gain with a budget veto, and support for his radical agenda is cracking.
It’s time for Wolf to stop holding students hostage to his demand for higher taxes.
In his 2015 budget address, Gov. Wolf stated, “But if you don’t agree with my ideas, here is my request: please come with your own ideas. It’s not good enough to say no and continue with the same old same old.”
Unfortunately, Wolf has become the expert at ‘just saying no’.
This would mark Wolf’s 10th veto. If he vetoes the Fiscal Code and bills funding Penn State, Temple, Pitt, Lincoln, and University of Pennsylvania, as he has threatened, the count rises to 16.
But while Wolf is busy saying no, he doesn’t offer viable solutions.
- Wolf complains of a structural deficit, but spending $800 million more won’t fix it.
- His 2016-17 budget included a retroactive income tax hike of 11 percent so he could spend more this year. Every person would pay back taxes on income earned since January 1. This is simply never going to happen.
- It is already March 17—more than 70 percent of the fiscal year is over. There is no way to raise and collect enough taxes by June 30 to pay for Wolf’s spending wish list. To quote Wolf: “The math just doesn’t work.”
What does Wolf hope to achieve by vetoing yet another budget?
We aren’t alone in questioning Wolf’s strategy of holding schoolchildren hostage to maintain pressure for more funding. School officials are also speaking out:
- Charleroi school superintendent Ed Zelich: “We feel like we’re being held hostage.”
- Terry DeCarbo, superintendent of the Sto-Rox School District: “Our students are being held victims to this … It's time to really put the students first and make a decision.”
- Bart Rocco, superintendent of the Elizabeth Forward School District: “We continue to plea for this to be settled and move on.”
- Mark Miller, school director in the Centennial School District and president-elect of the Pennsylvania School Boards Association: “This is a plague that the governor has released on public education, and it’s not necessary. We’re all going to catch the disease.”
Even some Democratic legislators are questioning Wolf’s game plan. From Capitolwire (paywall):
“I was dissatisfied with the results of the meeting on Monday for a multitude of reasons,” said Rep. Gerald Mullery, D-Luzerne. “The main reason I was dissatisfied with the meeting was I had hoped going in we would come out with a clear plan for the path forward, and in my opinion – speaking solely for myself – we didn’t have that, and that was truly discouraging to me.”
With a 10th veto looming, we agree with Wolf on one thing: It’s not good enough to just say no.
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