Pennsylvania State Budget
Pop quiz: What’s the largest spending increase in Governor Tom Wolf’s budget proposal? You might assume education, as the governor has repeatedly insisted the state must reinvest in public schools. Paying for ballooning public pension costs would also be a reasonable guess. But neither is correct.
In his 2015 budget address, Gov. Tom Wolf urged dissenters, “If you don’t agree with my ideas, here is my request: please come with your own ideas. It's not good enough to just say no and continue with the same old same old.” Talk is one thing—action is another.
Within hours of receiving the Legislature’s budget, Governor Wolf issued a blow to working families by vetoing the on-time, no-tax-hike spending plan. The truth is, Gov. Wolf’s own plan is grossly out of line with every other state in the union put together. All 49 other states combined are decreasing spending by $1.5 billion, yet Wolf is demanding a $4.6 billion increase for Pennsylvania.
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This week, Pittsburgh Mayor Bill Peduto criticized Gov. Wolf’s plan to sell $3 billion in pension obligation bonds. In a meeting with editors and reporters from the Pittsburgh Tribune-Review, the city’s Democratic mayor explained that this same plan nearly led Pittsburgh into bankruptcy and that:
“One out of every $5 we spend every year just goes back to paying those old bonds. Not only that, but our debt ratio is higher than New York City's when they went bankrupt.”
With Pittsburgh facing a $1.2 billion pension obligation, Peduto said “[t]here has to be a new mechanism from the state in how pensions are paid.”
Luckily, there is.
Peduto, along with a number of mayors and local government officials, supports state legislation that would reform the municipal pension plans. Specifically, these bills would put new employees into a 401k-style plan, and move pensions out of the collective bargaining process. There is a growing bipartisan support for municipal pension reform across the commonwealth.
And Peduto is far from alone in criticizing Gov. Wolf's ill-conceived pension obligation bond plan. Financial experts and rating agencies across the country have warned against using pension bonds to try to repay debt with more debt. Many cities, like Pittsburgh, and several states have tried to use pension bonds to get out of a bad financial situation—it hasn't worked yet.
Previously, we blogged on how Gov. Wolf’s tax proposal raises more revenue than the tax proposals in the 49 other states combined.
To put this another way, Wolf’s $4.6 billion tax increase is nearly $4 billion more than any other state. Only two other states—Connecticut and Alabama—had tax proposals even one-tenth as large as Tom Wolf’s proposal.
It is no wonder the House overwhelmingly rejected the governor’s proposal, which failed to garner a single vote as it was defeated 0-193.
The liberal Pennsylvania Budget and Policy Center—an arm of the union-funded Keystone Research Center—has a new claim that Gov. Wolf's "property tax relief" is similiar to that in a bill passed by the House of Representatives earlier this year.
Unfotunately, PBPC's analysis offers virtually no discussion of the tax increases in these plans.
For starters, PBPC never mentions that Gov. Wolf’s tax plan, overall, is a net increase of $3.8 billion in 2016-17, according to the IFO. This jumps to a net increase of $5.2 billion in 2019-20. The same IFO report finds that households in every income bracket would pay more in net taxes under Gov. Wolf’s plan.
Yet, PBPC's news release claims Wolf’s plan has "similar sales tax increases as in the House plan" and says the plans raise "revenues from the sales tax by similar amounts."
In reality, Wolf’s tax plan calls for almost $4 billion in higher sales tax revenues in 2016-17, compared to $1.7 billion in HB 504.
Those totals are nowhere close to similar. That’s the equivalent of saying a 6-foot tall man and a 2-foot, 6-inch child are similar in height.
|Tax Increases, Reductions Full Year Effects (2016-17/2017-18)
|Wolf Plan||HB 504|
|Income Tax Increase||$2,396||$2,710|
|Sales Tax Increases||$991||$1,655|
|Total Sales + Income||$6,366||$4,365|
|Other Tax Increases||$1,009||$0|
|Total Tax Increase||$7,375||$4,365|
|Property Tax Reductions||$2,732||$4,160|
|Net Tax Increases||$3,822||$80|
PBPC notes that Wolf’s plan calls for much more in additional spending than the dollar for dollar shift in the House bill, but claims this is "substantially paid for by a proposed severance tax on gas drillers."
I guess that depends on what your definition of "substantially" is—but about $3 billion of the $3.8 billion net increase in 2016-17 is paid for by taxes other than the severance tax (primarily the excess sales and income tax increases).
Meanwhile, neither plan addresses the inherent flaws in tax shifting. By relying only on a shift, taxpayers will still be hurt—even if in state taxes rather than in property taxes—by the cost drivers in education, including pension costs, mandated costs, and unaffordable union contracts.
Tax shifting creates winners and losers—families that would pay more under the shift and districts that would pay more under the shift. The PBPC analysis fails to consider this at all.
The House Appropriations analysis shows that 80% of school districts would pay more in income and sales taxes under Wolf’s plan.
Finally, PBPC's assertions about how we fund schools are misleading. Our state funding per student is similar to the national average, and overall, Pennsylvania schools spend about $3,000 more per student.
Claims of "similarity" aside, the truth is that Wolf's tax plan would cost Pennsylvanians dearly.
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