Crafting a fiscally responsible budget that keeps spending levels low and promotes the creation of new jobs in Pennsylvania.
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There is general agreement on the broad goals that Governor Wolf outlined. There will be a lot of questions asked about the specifics of his plans, and objections registered to parts that seem to be too expansive and too expensive. Consistent with the challenge he delivered, there will be legislative alternatives offered to better address some of the problems he identified.
There will naturally be a lot of concern about the tax and spending levels Governor Wolf has proposed, especially as the cost per household becomes more apparent. The total package will strike many people as unaffordable for taxpayers and detrimental to the economy.
No one disputes that Pennsylvania faces a combination of tough fiscal challenges. But the most serious need – pension reform – is touched too lightly in the governor’s plan. It is next to impossible to achieve long-term budget stability without tackling the pension problem.
Trying to fill a substantial budget deficit, increase state spending, and reduce property taxes all at once requires increases in taxes and borrowing that can prove economically harmful, given the slow recovery in jobs and wages Pennsylvania has been experiencing.
There are a lot of long-running complaints from families and employers about problems in the state and local tax structures. So it is good that the governor has started a new discussion about solutions. There will be a hard look taken at his tax plans to determine whether greater fairness results, or just an expansion of state government.
Homeowners and local taxpayer groups have endeavored for years to see state taxes replace local property taxes in a straight exchange. It is hoped that Governor Wolf’s commitment can help push this over the top, but the eventual plan needs to be a dollar-for-dollar reduction in property taxes, with strict limitations on future increases.
The ramping up of state borrowing, which had diminished under Governor Corbett, entails higher interest payments in the coming years, additional fixed costs that have to be accounted for. The reliance on new debt masks how large the proposed increase in state spending actually is.
Any number of the spending items in the state budget draw public support when considered independently. But there are two key questions that must be answered in the weeks ahead – whether taxpayers will support the overall increase in spending and taxes needed to pay for those items, and what the impact on the state economy will be of more expensive state government.
The political value of various spending items is readily apparent. What we must ascertain through budget hearings and budget analysis in the months ahead is the practical value of the spending, and whether the anticipated results justify the cost.
Pennsylvania has proved time and again that pumping more money into education is no guarantee of improvement in student performance. How the money is distributed, the purposes to which it is directed, and what accountability measures are in place are critical considerations in settling on a funding level. Agreement on a revamped funding formula is essential, but not easy to achieve.
Governor Wolf’s previously announced intention to access federal money to provide health care help for low-income working families is a good move, as long as they do not scrap cost-saving measures instituted by the previous administration.
The effort to increase spending for infrastructure should draw local interest. Local communities can benefit from fresh funding for programs to assist in job creation, community safety, and environmental protection, and those are areas that should get priority.
- The Governor’s proposed $31.6 billion budget for Fiscal Year 2015-16 represents an increase of $4.7 billion (16.1 percent) increase from Fiscal Year 2014-15.
- His proposal would raise taxes by $12 billion over the next two fiscal years – about $1,000 for EVERY man, woman and child in Pennsylvania.
- The budget includes massive increases in Personal Income Taxes, Sales and Use Taxes and the state Cigarette Tax. It would also create a new Severance Tax and impose new taxes on cigars and other tobacco products.
- The Governor’s proposal ignores the escalating costs of Pennsylvania’s public pension programs in favor of incurring $3 billion in new debt for PSERS.
- Funding increases are proposed for basic education funding ($400 million); special education ($100 million); Pre-K Counts ($100 million); higher education ($160 million); Human Service programs ($700 million); and Corrections ($150 million).
- Governor Wolf’s proposed 20.5 percent increase (from 3.07 percent to 3.7 percent) would take an additional $2.4 billion from individuals, families and nearly 1 million small businesses across the Commonwealth.
- Raising the sales and use tax rate could have a devastating effect on businesses in Pennsylvania’s border counties as consumers look to neighboring states for purchases, as Delaware has no sales tax. New York State has a 4 percent rate. Ohio has a 5.75 percent rate and both Maryland and West Virginia have 6 percent sales tax rates.
- The sales tax increase would be particularly devastating to low-income families. According to the Institute for Taxation and Economic Policy (ITEP), sales taxes already take a 5.8 percent bite out of the total income of Pennsylvania’s lowest income families. Increasing the sales tax rate would mean those people would see their spending power decrease even further.
- The Governor’s proposed Marcellus Shale Extraction Tax of 5 percent of the value of gas at the wellhead and 4.7¢ per each 1,000 cubic feet of volume severed represents about a 7.5 percent tax rate – one of the highest in the nation. Only Texas has a 7.5 percent extraction tax, but that state doesn’t impose a corporate tax. This comes at a time when many companies are scaling back their operations and laying off workers because of low gas and oil prices.
- Act 13 of 2012 imposed an unconventional gas well fee which has provided more than $630 million to local and county governments to compensate for impacts of the industry, in addition to more than $2 billion companies have paid in state taxes.
- The natural gas industry has created 245,000 direct and indirect jobs in the state since 2007, according to Pennsylvania Department of Labor and Industry estimates. These jobs have provided a tremendous economic boost to communities across western and northern Pennsylvania.