The 2016-17 budget has passed, yet it remains unbalanced, relying on borrowing money and yet-to-be-passed legislation. Many revenue estimates are overly optimistic. Without efforts to reduce spending or reform cost drivers like pensions and human services, taxpayers should expect a push for tax hikes in 2017.
1. Tobacco taxes are an unstable revenue source, but they account for 75 percent of this year’s $650 million tax hike. Recently, Philadelphia reported cigarette tax revenue 25 percent below original estimates. Expect statewide tobacco taxes to fall short, and continue to decline as smokers give up or travel to other states for cheaper cigarettes.
2. New revenue from wine-expansion is questionable. The estimated $150 million in revenue for 2016-17 assumes all 12 casinos will seek $1 million permits for 24-hour alcohol sales. However, no casino has shown interest. The estimate also assumes expanded hours, coupons, and flexible pricing (read: higher prices) will boost revenues by $55 million.
3. Significant one-time revenue transfers, absent spending reforms, will increase pressure for broad-based tax hikes. The budget includes roughly $460 million in one-time revenue, including money from new gaming licenses, a $200 million loan from the medical malpractice fund, and several one-time transfers from other funds. While legislators are right to look to surpluses in other funds before raising taxes—though this year they did both—one-time shifts were needed only to cover the largest spending increase in a decade.
4. The budget depends on $100 million from a gambling expansion that doesn't exist. Lawmakers intend to pass a gaming expansion bill in the fall, but there is no guarantee they will. This additional $100 million is needed, as lawmakers moved $95 million in payments to the Commonwealth Financing Authority off budget. Balancing the budget also depends on $50 million from a casino license in Philadelphia; however, this license has been tied up in court for two years with no end in sight.
5. Optimistic General Fund revenue estimates. Independent rating agency S&P assigned Pennsylvania bonds a negative outlook due to the commonwealth’s dubious revenue estimates: “We view the fiscal 2017 budget as structurally imbalanced and believe that many of the revenue assumptions could prove optimistic.”
It's easy to overlook tax hikes that may not affect your daily life, but new taxes on smokers, vapors and Netflix users are just a prelude to the higher taxes in store for all Pennsylvanians unless legislators take action on long-term fiscal reforms.