Everything You Need to Know About the State Budget

The Good

  • Spends less than Gov. Wolf’s proposal. The $33.3 billion budget Gov. Wolf outlined was never seriously considered, given how far it was outside the realm of political possibility. Still, this budget spends $1.7 billion less than what Gov. Wolf offered.
  • No income or sales tax increases. The tax package does not include the broad-based tax increases Gov. Wolf proposed. A tax on home heating bills was left out of the revenue package as well.

    The enacted tax increases amount to $203 per family of four, borne mostly by smokers. Wolf’s proposed budget called for a tax increase of $850 per family of four.

  • Expansion of school choice. The Legislature increased the Educational Improvement Tax Credit (EITC) by $25 million. The state will now offer $75 million in tax credits for K-12 scholarships, $37.5 million for educational improvement organizations, and $12.5 million for pre-K scholarships, plus $50 million for the Opportunity Scholarship Tax Credit program.

The Bad

  • Spending growth is 5 times the rate of inflation and population growth. The General Fund has now grown by $2.5 billion in Gov. Wolf’s first two years, approaching the $2.85 billion General Fund increase passed during the prior eight years combined.
  • $650 million tax increase. The $1-per-pack cigarette tax hike makes up the bulk of the new revenue. The tax could potentially hit 2 million adult smokers in the state.

The revenue package includes eight additional tax increases:

  1. A new 55-cents-per-ounce tax on smokeless tobacco
  2. A 56-cents-per-ounce tax on roll-your-own cigarettes.
  3. A 40% tax on the wholesale price of e-cigarettes.
  4. A 6% sales tax on digital downloads, including videos, books, games, music, and applications.
  5. An increase in the bank shares tax.
  6. A reduction in the “vendor discount” offered to retail stores that collect sales taxes for the state.
  7. A 2% tax increase on casinos’ revenue from table games.
  8. An income tax on lottery winnings.
  • Biggest spending increase in a decade.
  • The budget remains unbalanced. The budget counts on $200 million in loans from other funds and relies on $100 million from expanding online gambling—legislation that hasn’t passed yet.

Pennsylvania's Constitution does not say the Legislature can pass something pretty close to a balanced budget or promise to balance the budget in the near future. It requires a balanced budget.

  • Risks a future tax increase. Revenues from sin taxes are unpredictable and decline over time. The budget also relies upon one-time revenue sources. Additionally, the budget authorizes the Department of Human Services to take money from the Workers’ Compensation Trust Fund if Medicaid bills exceed appropriations. All of these provisions set up a potential income or sales tax increase next year to bridge the budget gap.
  • Other issues tabled until the fall. Pension reform and charter school reform, two issues debated closely as part of this budget negotiation, were not addressed. Lawmakers indicated they plan to address these issues this fall—though such promises often never come to fruition.
  • Does not include vital spending reforms. Lawmakers did not address the $800 million in corporate welfare identified in the budget. They also did not tackle reforms to slow the unsustainable growth of human services spending.

Where is the new spending going?

  • Community and Economic Development – $13 million (5.8% increase).
  • Conservation and Natural Resources – $45 million (72% increase). This increase stems from Gov. Wolf’s decision to bar gas extraction under state lands, shorting the Oil & Gas Fund and leaving taxpayers to foot the bill.
  • Corrections – $153 million (6.8% increase).
  • K-12 education – $666 million (6% increase). This includes $345 million for school pensions, $200 million for basic education, $25 million for government-run preschool, and $20 million for special education.
  • Human Services (formerly Public Welfare) – $466 million (4.1% increase).
  • General Assembly – $18 million (6.3% increase).
  • Higher education – $38 million (2.5% increase).