Pennsylvania State Budget
Turns out, lawmakers weren’t too keen on giving Pennsylvania the second highest state sales tax rate in the country. And legislators didn’t like Gov. Wolf’s ideas for wealth redistribution via “property tax relief.”
This is the fourth tax hike proposal put forward by Gov. Wolf that has fallen apart, gaining little support even from his own party.
The governor, and some lawmakers, must recognize the simple reality: No one wants to pay more in taxes.
Before any more is asked of taxpayers, here's how lawmakers should prioritize:
Among the many questions in a tentative state budget deal is how revenue from the sales tax increase would be distributed. The Associated Press notes this will be a major source of contention should the plan pass.
Under a formula initially proposed by Wolf, Philadelphia would get 14 percent of the money; under the House GOP plan, it got 5 percent. Under Wolf's plan, wealthy Lower Merion would get less than 1 percent; the House GOP plan would give it almost three times as much.
Last Thursday, Gov. Wolf said he wants to see "a progressive formula to distribute the resulting property tax reductions."
While we don’t yet know what the new formula might look like, we can look at how the $616 million in slot machine revenue is currently distributed.
Overall, slot machine revenue for property tax relief yields $222 per homeowner. This varies widely by school district—from $46 per homeowner in Bryn Athyn school district to $653 per homeowner in Chester-Upland.
Most districts (376 or 75 percent), however, receive less than the average $222 per homeowner.
Meanwhile, Philadelphia’s revenue—$86 million or 15 percent of the total—is dedicated to reducing the city wage tax rather than property taxes.
This redistribution—along with school tax increases—shows why most homeowners are disappointed. They’ve never seen the promised tax relief from gambling.
The table below shows the top 10 and bottom 10 current recipients, per homeowner.
|Property Tax Relief By District|
State Property Tax Reduction Allocation
|Estimated Tax Relief per Homestead and Farmstead|
|Allentown City SD||Lehigh||$9,639,281.38||16,948||$569|
|York City SD||York||$2,901,801.73||5,473||$530|
|Pleasant Valley SD||Monroe||$4,069,921.61||8,604||$473|
|William Penn SD||Delaware||$3,404,197.02||7,380||$461|
|Cheltenham Township SD||Montgomery||$3,609,813.90||8,062||$448|
|Harrisburg City SD||Dauphin||$2,774,667.62||6,331||$438|
|Mid Valley SD||Lackawanna||$261,188.73||4,010||$65|
|Eastern Lancaster County SD||Lancaster||$446,237.91||6,857||$65|
|Saint Marys Area SD||Elk||$348,202.23||5,596||$62|
|Mars Area SD||Butler||$327,476.67||5,717||$57|
|Cumberland Valley SD||Cumberland||$916,543.69||16,489||$56|
|Palmyra Area SD||Lebanon||$342,742.08||6,572||$52|
|Bryn Athyn SD||Montgomery||$9,283.10||202||$46|
Promising property tax relief is one thing, but delivering real relief requires a fair formula and strict spending controls.
Rumors about a proposed budget continue to swirl in Harrisburg. One such rumor is that the deal would include an increase in the sales tax rate to be used for property tax relief.
One new idea under discussion could provide a cornerstone of the cash Wolf is seeking: diverting the roughly $600 million in slot-machine gambling receipts that school districts currently pass along to homeowners as property tax reductions. That stream of money would shift to the state treasury, while negotiators are discussing an increase in the state sales tax to offset reductions in local school property taxes, another concept that is important to Wolf to improve equity in school funding.
This may be sold as a “dollar-for-dollar tax shift,” but represents anything but. In reality it would be a $600 million tax increase on working families.
That is, if the plan were to increase the sales tax by $2 billion next year, property taxes would only be cut by $1.4 billion—with $600 million directed to new spending.
That’s a backdoor tax increase on working families.
On October 21, more than 100 days after his veto touched off Pennsylvania’s ongoing state budget impasse, Gov. Tom Wolf sent a letter to the Philadelphia Federation of Teachers saying “I am with you.” This has been his spoken—and unspoken—pledge to government unions across the state.
Had Wolf sent a letter to the schoolchildren of Pennsylvania, rather than a teachers union that gave nearly $900,000 to his election campaign, it may have read something like this:
Dear Schoolchildren of Pennsylvania,
You don’t have to be a “straight-A” student to notice public schools are borrowing money because I vetoed state education funding—several schools might even shut their doors if they don’t get money soon.
You see, I could have signed a budget that increased school funding—or even used the line-item veto so schoolchildren aren’t held hostage. But I vetoed the entire budget instead. As I explained, “I want to keep the pressure up.”
I could have agreed to temporary funding to keep schools opens. I vetoed that too. Remember, I said, “I want a fight.”
I could try to work with Republicans to put your needs first, but I won’t give in. As I explained, “I’m not going to cave on this. I can’t cave on this.”
I wish I could help out, but like I told the Philadelphia Federation of teachers, I’m with the union.
Let’s face it, government unions gave $3.5 million to my campaign and spent millions more in union dues to support my election.
They expect a return on that investment.
That’s why I stripped Bill Green from his chairmanship of the School Reform Commission for supporting charter schools in Philadelphia. Yes, charters serve low-income, minority students, and most charters outperform other district schools. But the union doesn’t like charter schools. I’m with the union.
That’s why I forced the Chief Recovery Officer out of York—the state’s second-worst performing school district. The unions opposed the officer’s recovery plan to improve performance and save money. I’m with the union.
That’s why I want to cut funding for cyber charter school students and for special needs students in brick-and-mortar charter schools. Unions want to keep all students in union-dominated schools. And I’m with the union.
That’s why my administration stopped sending funds to charter schools during the budget impasse I created. Sure, state law lets us release funds when school districts refuse to pay, but unions complained. Sorry charter kids, I’m with the union.
That’s why my administration froze the tax credit scholarship programs, which allow thousands of kids to afford better schools. The tax code is still law, and everyone is still paying taxes. But I’m with the union, and, as I’ve said, “I want to keep the pressure up.”
But don’t worry, students—it’s not just you. I’m siding with unions over all Pennsylvanians.
That’s why I vetoed liquor privatization—even though nearly every state lets private stores sell wine and liquor, and Pennsylvanians overwhelmingly want to see that here. I’m with the union.
That’s why I tried a backdoor executive order to unionize home care workers. Unions would like people simply providing care for a family member to pay union dues. I’m with the union.
That’s why I vetoed pension reform, too—even though my own former business offers 401(k)s. Our state may be more than $50 billion in pension debt, but I’m with the union.
That’s why I am negotiating contracts with union leaders in secret even though I publicly trumpet transparency. And that’s why I threatened to veto paycheck protection that gives unions an unfair political advantage. I’m with the union.
Again, please believe me that I feel your pain and suffering, but this isn’t about you. I’m with the union.
Best of Luck,
Governor Tom Wolf*
*This letter is satire, though the quotes from the governor are real.
Fell Charter Elementary School near Scranton will stop paying teachers next month and the school is considering a four-day week thanks to the state budget stalemate.
Fell's announcement is just the latest reminder of Governor Wolf's strategy to leverage schools for tax hikes. First the governor withheld EITC and OSTC scholarship funds, which allow thousands of Pennsylvania kids to escape failing schools—even though these scholarships are part of the tax code which is still in effect.
Next, a handful of district schools stopped sending tuition payments to charter schools, which serve more than 100,000 kids in Pennsylvania. When the state began to pay charters by redirecting gaming revenue, districts vehmently protested, leading the Treasury to stop payments at the request of Senate Democrats.
It's not just students at charter schools that are pawns in Gov. Wolf's political game. District schools desperate for funding were told they could not seek loans from the state Treasury. This is in spite of the comparisons they made to a loan floated to House Democrats from the Treasury.
In short, all types of schools and students across the commonwealth are held hostage.
Yesterday, Auditor General Eugene DePasquale announced at least 27 school districts and two intermediate units are now borrowing money to stay open. That puts total borrowing at $431 million, plus an estimated $14 million in interest costs. DePasquale expects the number of borrowing districts to jump to 54 by Thanksgiving
Hours later, the state Senate tried once again to provide relief to schools by attempting a veto override of a stop-gap budget that would release four months of funding to schools and social service agencies. The move fell short by 3 votes.
As rumors of a new deal circulate one thing should be clear: No one wins by holding schools hostage for historic tax increases.
During 100-plus days of the state budget impasse, Gov. Wolf’s words and actions have been consistently inconsistent, leaving taxpayers and lawmakers confused. Commonwealth Foundation President and CEO Matt Brouillette noted, "One minute, Governor Wolf puts on a conciliatory face and the next he pulls out his boxing gloves," making negotiations a difficult affair.
Here are few examples of Gov. Wolf's dizzying rhetoric:
Good Cop: “Every child must have access to a great education, and teachers must have the resources they need to deliver a great education.” (March 3)
Bad Cop: “I want to keep the pressure up.” (Sept. 29)
Good Cop: Wolf-appointed Treasurer advances House Democratic Caucus $1.9 million for payroll. (Sept. 10)
Bad Cop: Wolf administration refuses to advance school districts funds to keep doors open. (Oct. 20)
Good Cop: "We need to agree that you can’t take money away from anything and expect to get to a good outcome." (Oct. 16)
Bad Cop: Proposes highest in state history tax hikes amounting to $1,400 per family of four. (March 3)
Good Cop: “I pledged to be a different kind of governor, and I will keep that promise.” (Jan. 20)
Bad Cop: “Your lack of emotion about our children’s future is exactly what is wrong with Harrisburg.” (Tweet to Majority Leader Jake Corman, Sept. 18)
Good Cop: “I’ve made concession after concession after concession.” (press conference, Oct. 16)
Bad Cop: “I’m not going to cave on this. I can’t cave on this.” (Oct. 13)
Matt goes on to say, "Pennsylvanians deserve more than 100 days of ‘good cop-bad cop’ political games. They deserve more than students held hostage to tax hikes. They deserve true leadership."
Earlier this week, The Neighborhood Academy, a private school in Pittsburgh, held a rally in the state Capitol to highlight Gov. Wolf’s withholding tax credits for student scholarships.
Pennsylvania’s Educational Improvement Tax Credit program (EITC), along with the Opportunity Scholarship Tax Credit (OSTC), lets businesses contribute funds for scholarships so thousands of low-income students across Pennsylvania can attend private school.
For students, this is a lifeline to better or safer schools. For schools like The Neighborhood Academy serving high poverty areas, the scholarships are essential to survival.
The Wolf administration justifies withholding tax credits by claiming its “hands are tied” due to the budget impasse.
But this makes little sense. The EITC and OSTC are not appropriations that are part of the budget.
Instead, they’re part of Pennsylvania’s tax code. This code is in effect despite the budget impasse. After all, everyone reading this is still paying taxes.
Unfortunately, holding school children hostage has become part of that "pressure."
CF’s Nate Benefield discussed the House vote, as well as the continued opposition, to Gov. Wolf’s budget proposal with WPHT’s Dom Giordano.
Nate points out that several Democrats broke with Gov. Wolf and voted against his proposal, a clear sign that residents across Pennsylvania will not accept tax increases.
“There’s this long dispute over Gov. Wolf’s demand for higher income taxes. The House Republicans said, we’re going to let you have a vote, give you a week to round up and call on lawmakers and try to get them to vote for a tax increase. The Governor came back with his third proposal, his third swing at it, and it’s been lost. Every Republican voted against it a number of Democrats voted against it, which should send a message that Pennsylvania and our lawmakers do not want to see higher taxes.”
Despite this clear message, Gov. Wolf has said he’s “not taking anything off the table”.
Nate outlines the harm that Gov. Wolf’s proposal would have on taxpayers, stating it “is simply a straight up income tax and natural gas severance tax. It’s really 95 percent of the money coming from higher taxes on working families and all Pennsylvanians”.
Click here or listen below to hear more.
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When you assume an investment return rate of 7.5 percent and your actual returns are 3.04 percent you have a problem. If you are the Pennsylvania Public School Employees' Retirement System you have a BIG problem.
This week, PSERS announced an investment return of 3.04 percent for the 2015 fiscal year. In other words, local school districts and state taxpayers will have to find even more cash to make good on retirement promises.
The PSERS system already carries a $35 billion unfunded liability, $39 billion if you look at the market value of assets rather than the actuarial value of assets. This shortfall will add roughly $2 billion to these deficit figures, when the official results are released this December.
Experts note the system's 7.5 percent return on investment assumption is overly optimistic. Chris Comisac over at Capitolwire (subscription) explains:
Wilshire Associates, an independent investment management firm . . . calculated the median return of public plans with more than $5 billion in assets at 3.4 percent, meaning PSERS fell short of that median level.
. . . since the most recent financial market meltdown in 2008-09, PSERS hasn’t had investment returns actuarially valued above 6 percent, with a few below 5 percent. Meaning that since 2008-09, PSERS’ investment returns have fallen short of their target, increasing the system’s unfunded liability.
PSERS is disguising how broken the pension system is by operating under the current investment return assumptions. Without substantial pension reform including compliant funding policies, the unfunded liability will continue to increase and stretch school districts and gobble up state tax dollars, leaving less and less for the rest of state government.
The one silver lining is lower investment fees. For the second year PSERS’ investment expenses have declined, from $558 million in FY 2012-2013 to $455 million in FY 2014-2015, an 18 percent reduction. But $100 million in savings pales in comparison to a liability growing by billions each year.
PSERS overly optimistic investment return assumptions are just one more example of how the system is broken. Pension reform isn't an option as budget negotiations continue; it's a necessity.
Today, the Wolf tax hike was resoundingly defeated in the state House (73-127).
Repeatedly, Gov. Wolf has failed to convince lawmakers—including those of his own party—to impose his massive hikes on Pennsylvania families. The message is clear: smarter spending, not more spending, is what Pennsylvanians want.
The governor recently said if he loses, Pennsylvania loses. But today, Pennsylvania won because lawmakers—Democrat and Republican alike—refused to bow to the governor’s demands.
You can read the rest of our news release here, but first, please join me in thanking the lawmakers on both sides of the aisle that stood for taxpayers by sending a note of encouragement to your representative. Click here to see the full roll call.
The budget battle continues, so we'll remain vigilant in fighting for a state budget that—as our mission states—allows all Pennsylvanians to flourish.
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