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Still No Budget and 2016-17 Address Promises Little Compromise

2/23/2016

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Since Governor Wolf's line-item veto of the legislature-passed state budget in December, there have been few meetings between his administration and the legislature, and no progress has been evident. Following the Governor's budget address in February, there is little hope for cooler heads to prevail.

The Governor conceded early that his budget address would be atypical in that it did not delve into specifics of the proposed budget. Those specifics were replaced with harsh words directed at the Republican majorities, primarily aimed at the House of Representatives. He stated that any legislator that did not recognize the need for significant new revenues was "just ignoring the math." He castigated the House Republican majority for walking away from the proposed compromise budget, which drew groans and catcalls from the assembly. And before concluding his address, suggested that legislators take their responsibilities to govern seriously or "find another job."

Regarding the budget numbers themselves, they closely resemble what the Governor proposed for FY 2015/16, with some exceptions. Below are some of the highlights:

• The spend number, $33.2 billion, is less than what was proposed in March of 2015, but is significantly higher than either of the compromise budgetary frameworks that were put before the General Assembly in the fall.

• The significant spending exclusion from this budget proposal from the 2015/16 proposal is the swap of state taxes for dedicated property tax relief. 

• With property tax relief no longer a consideration, the major spending increase is directed towards education. The 2015/16 budget proposal contained a $10.1 billion boost in education spending, and the 2016/17 budget ups that number to $12.4 billion.

• The primary revenue generator for these spending increases is a retroactive personal income tax, which will jump from 3.07 percent to 3.4 percent. 

• Sales tax is not increased, but is expanded to other services, although does not appear to be expanded to food products that are typically sold by PFMA members. The vendor's sales tax allowance is essentially eliminated with a proposed $25 per month cap.

• Cigarettes would be additionally taxed by a $1 per pack increase. OTP, cigars and loose tobacco would be taxed at a 40 percent rate.

• A 6.5 percent severance tax on natural gas extraction, which was removed from the compromise budgets submitted to the General Assembly, has been reinserted.

• The 2016/17 budget does not require mandated combined reporting for Pennsylvania businesses, does not include a reduction in Net Operating Loss carry-forward and does not reduce the Corporate Net Income (CNI) tax for businesses, all of which were proposed in 2015/16. The Governor's administration signaled their willingness to revisit these items following a budgetary agreement.

PFMA has serious concerns regarding the potential negative impact this budget proposal would have on its members and their customers.

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