5 Ways Senate’s ‘Wolf-Lite’ Budget
Will Disappoint Taxpayers
Walking-Around Money Gets Big Boost in $30.8 Billion Budget
December 7, 2015, HARRISBURG, Pa.—Today, the state Senate passed a $30.8 billion budget plan less than 24 hours after the bill was introduced and with few details available. Only after the bill was passed could the public get glimpse at what’s in store. It turns out there are at least 5 major problems for taxpayers—notably a $103 million increase in DCED spending which includes walking-around money (WAMs).
“Taxpayers should be disappointed with this step that fulfills Gov. Wolf’s demands for higher spending and tax increases without achieving necessary reforms in return,” commented Matthew Brouillette, president and CEO of the Commonwealth Foundation. “The ‘framework’ budget spends beyond our means, continues to underfund public pensions, resurrects walking-around money, falls flat on liquor privatization, and will require broad-based tax increases.”
“In essence, this budget is ‘Wolf-lite’ and remains unaffordable to taxpayers already on the hook for more than $17,000 per family of four in state and local taxes. Over the last 5 months, four separate tax increase plans from Gov. Wolf have been defeated, making clear that Pennsylvanians simply aren’t interested in giving more money to Harrisburg. Thankfully, House lawmakers seem intent on putting taxpayers’ interests first and will likely not include any significant tax increase in their plan.”
Five Ways the Senate Budget Disappoints
1. Excessive Spending Growth. The $30.788 billion budget represents spending growth of 5.4 percent over last year’s budget. Even including items shifted off budget last year, this represents an increase of $500 million more than inflation and population growth.
2. WAMs are back. The budget includes a $103 million increase (51 percent) in Community and Economic Development spending. This includes several line-items identified as WAMs and eliminated in previous budgets.WAMs (or “walking around money”) are slush funds use for special projects, usually controlled by legislative leaders. In the past, they’ve been used to buy votes, and have been the abused with rampant corruption.
3. Problematic pension reform. The revised pension bill included a side-by-side hybrid, with a smaller defined benefit pension and a defined contribution component. This reform is weaker than SB 1 (vetoed by the governor) and while a step in the right direction, doesn’t get the politics out of pensions.
For current employees, the legislation would alter the calculations for “lump sum withdrawals” (the money employees can take in one single payment when they retire, with a reduced pension) and the calculation of “average final salary.”
On the negative side, the bill continues to underfund pensions. The proposal reduces collared contribution rates, which further underfunds the pension plan and adds an estimated $500 million to the unfunded liability. The bill also suspends the requirement that all pension bills have an actuarial note attached before being voted on.
4. No privatization in “liquor privatization.” The senate liquor plan—which has not yet passed—strips out many of the components of privatization. It would retain the government monopoly over the wholesale side—every retailer would still have to buy wine and spirits from the PLCB. Instead, there would be a “study” to recommend whether the state should privatize wholesale liquor sales.
This monopoly gives a few bureaucrats power to determine what can be sold in Pennsylvania, maintains the conflict of interest whereby the state sells and controls alcohol, and has led to numerous cases of corruption and bribes.
Restaurants and bars would be able to sell wine (and only wine) to go, while beer distributors would also be able to sell wine and spirits. There would be no new liquor licenses for grocery stores or other private retailers.
5. Higher Taxes. This plan will include some broad-based tax increase to generate the $600-$700 million needed to pay for additional spending.
We don’t know what taxes will go up. There is no agreement on a tax plan; that is, the Senate passed a budget without the revenues to pay for it. It’s unclear if there is support in the Senate to pass a tax hike, a very clear sign there isn’t support in the House for a tax hike of this magnitude.
Matthew Brouillette and other Commonwealth Foundation experts are available for comment. Please contact John Bouder at 570-490-1042 or [email protected] to schedule an interview.
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