Charles Thompson | cthompson@pennlive.com
Get ready for Pa. Budget Grind, '17
OK Pennsylvania. You did your part to pay for prisons, state universities, a safety net for the poor, that state trooper who just clocked your speed on the interstate.
Now, it's up to your elected representatives to decide how to spend all that largesse, re: your tax dollars. And in some cases, raise some more.
If all goes well, we are one week and $2.2 billion away from a new budget deal for fiscal 2017-18, which starts on July 1.
That means lots of wheeling and dealing ahead. So, if you care about school funding, the spread of legalized gambling, quality of life issues for the poor, or just the general level of state spending, this would be a good week to pay attention.
Or maybe even to register your opinion with a state Rep., Senator, or the governor's office. You can rest assured that regiments of professional lobbyists will.
(PennLive file photo)
For starters, it's better than 2015
House and Senate leaders struck a note of guarded optimism about the 2017-18 state budget this week, even as little outward progress was noticeable and many fairly weighty questions - like how to pay for it – loomed.
"I think we're making progress," Senate Majority Leader Jake Corman, R-Centre County, said last week.
"Most of the big stuff is close to getting in line, and we'll squabble over the little stuff at the end... But there's no major divide, as there's been in the past."
Leaders of the majority Republican caucuses suggested they are honing in on a general fund spending number of close to $32 billion, or somewhere between the budget Gov. Tom Wolf proposed this winter ($32.3 billion), and the April return of service from the state House of Representatives ($31.5 billion).
Of course, the devil is in the details. And for the details, read on.
Lucy Berry | lberry@al.com
Cigarettes may hold the key
One of the more dramatic proposals under consideration - and ostensibly the least painful to Pennsylvania businesses and taxpayers - is borrowing against the state's future tobacco settlement payments.
A loan of $1.7 billion, according to sources familiar with the project, could be paid off with something like one-third, give or take a few percentage points, of future tobacco settlement payments.
The argument for it is that the one-time infusion of cash would permit the budget builders to cover an ugly $1 billion-plus deficit in the current fiscal year without a large, broad-based tax increase.
They would then count on better revenue growth in 2017-18 to catch up to at least the 2016-17 spend level next year. Any spending growth for 2017-18 would be covered by new taxes or fees.
The funny thing is, no one wants to be the public father of this program because of that whole one-time use with a long-term tail thing. But it may be the last idea standing at the end of this discussion simply because nothing else comes close to providing the same amount of dollars.
PennLive file photo
Who gets hurt by tobacco borrowing?
Most at risk are the health-related programs and services that currently benefit from the tobacco money.
Depending on how much is borrowed, about $140 million of the roughly $350 million payment could be swept off the top for debt payment.
Currently, that money supports - among other things - state investment in medical research, stop-smoking programs, medical assistance for disabled workers, reimbursements to hospitals for charity care, and services aimed at helping aging seniors stay in their homes.
Sources say the blow could be softened by attempts to structure the deal so that most of the tobacco funding streams – including research dollars that lobbyists argue is critical in leveraging federal dollars here – are untouched through next year.
Other programs might be able to be folded into other funding streams in the general fund budget, though that in itself could be a fight because many like the certainty of the dedicated funding stream they have now.
Bottom line? It might prove far easier to solve a relatively small number of health-related funding questions than to find from other sources the $1 billion-plus that a tobacco bond deal promises.
Especially considering that most of the budget builders are already banking on those sources to pay for 2017-18 spending.
Rolling Stone
Penn. Franklin. Paterno. Norquist?
Remember Grover Norquist, the Americans for Tax Reform guy who in the early part of this century got our elected officials to believe the 1st Commandment of politics is not raising taxes?
Well, he's got a 14-year streak in play with Pennsylvania's personal income tax and it looks as if it will continue.
Despite the state's soaring public pension obligations, stagnant tax base and other issues, the House and Senate Republican leaders have definitively sworn off increases in the 3.07 percent state income tax for another year.
The good part? Your paycheck, at least, is safe from Harrisburg for another year.
Donald Gillliland
The shale tax can wait, too
In the face of hard resistance from the House and Senate Republicans, it also looks like Gov. Wolf is going to lose again in his quest for a new severance tax on natural gas pulled from the state's Marcellus Shale formation.
A top GOP staffer suggested the proposal is still technically on the table in this year's talks, but pretty close to the edge.
Sue Gleiter, Pennlive
Will you drink to this?
So where will the money to balance this budget come from?
One very viable revenue option as of late Friday was a proposal to recast Pennsylvania's 6 percent sales tax on liquor bought by bars and restaurants from a wholesale tax to a retail, by-the-drink tax.
The theory here is that this could net about $200 million for the state simply because the taxes on thirty $5 screwdrivers made from any given bottle of vodka will bring in much more revenue than that from one sale of the bottle of vodka itself.
So the tax, on a larger revenue base, will net more.
Why do it? This could be one of those building blocks that would help close the $750 million or so gap the budgeteers believe they would still need to fill for 2017-18.
It also relieves some of the pressure to expand gambling.
Consumers would likely be paying a little more for each drink purchased at their favorite bar or restaurant, true, but it might go down a lot easier than some of the other options before our lawmakers - especially if it's the second o third drink!
Janet Krajcsik | jkrajcsik@pennlive.com
Place your bets on expanded gambling
An expansion of legal gambling is seen as one of the major, and most controversial, money trees in this year's budget discussion, with lobbyists working for everything from slots in bars, private clubs and truck stops. to legalized internet gambling, to kiosks in airport terminal.
Why do it?
As long as most of those running for re-election in 2018 have foresworn an income tax increase, gambling looks like the lowest-hanging fruit - never mind the social costs that inevitably follow.
The problem here is that there are so many competing interests who see this as the chance-of-the-decade to get in on this money train that it becomes very difficult to balance them all without making the whole thing too heavy a lift.
PennLive file photo
To VGT, or not to VGT?
The biggest fight hinges on the quest for video gaming terminals at bars, taverns and private clubs, who argue they should have the opportunity to offer legal games to their customers, and are forced to compete at a disadvantage without them.
A bill with VGT language passed the House earlier this spring with the minimum 102 votes.
The operators of the state's existing casinos have shoved back forcefully, both with an anti-VGT television ad campaign, and with a legislative proposal to instead create more than a dozen satellite casinos around the state, filled with slot machines that they hold licenses for but aren't using at their existing facilities.
Senate leaders are hesitant, and prefer a more limited expansion that centered on casino-run Internet-based games, and opening the door to online sales of Lottery tickets to keep the state's gambling franchise on an even footing.
Adding VGTs, Corman argued this week, and "you're talking about probably a larger expansion of gambling than the 2004 bill that set up gaming in Pennsylvania, all being driven by revenue numbers.
"At some point, we have to sit back and look at the public policy that surrounds all this and ask: 'Is this good for our communities?'"
This is where much of the political suspense lies this year. At week's end VGT supporters were pushing a compromise plan that would permit the gaming machines by right only in counties without casinos.
That's an effort, said Sen. Rich Alloway, R-Franklin County, to balance the established casinos' desire for market protection with the ability for 'thousands of Mom and Pop restaurant and bar owners" to get a piece of the gambling pie.
We'll all know this week whether it's getting real traction.
As a practical matter, most observers believe the measure likely needs support from at least 18 of the 34 Republican senators to stick in any final gaming bill. Even then, it would ned to go back to the House for approval of the amended language.
Wolf, for his part, said Wednesday he wants to see what the legislators come up with before putting his thumb on the scale.
Charles Thompson | cthompson@pennlive.com
A New York state of mind?
Senate Republicans are also vetting a new financial transactions tax that would be centered solely on the obscure business of buying and selling space on energy transmission lines.
Pennsylvania plays host to this roughly $2.5 billion-plus market by virtue of our role as host to the business end of PJM energy grid. Some have drawn a parallel here to the state taxes collected by New York on Wall Street transactions.
Those familiar with the issue say a 5 percent tax on this relatively small slice of PJM's activities could net the state about $125 million per year, with minimal impact on the industry.
Because it's new, however, some will need to be convinced the revenue would really come in as projected. It's also hard to know for certain that the costs wouldn't be passed on to electric consumers in some way.
But as recently as this week, sources said, budget builders were still said to be asking questions about it.
Charles Thompson | cthompson@pennlive.com
Tossing the revenue salad
There are other one-time pieces at play, too.
House Speaker Mike Turzai on Wednesday referenced work by York County's Sen. Scott Wagner and Rep. Seth Grove showing hundreds of millions of dollars in various special funds that could be available for one-time uses.
"I don't know to what extent those would be necessary," Turzai said, "... but I do think that's a third component" of potential revenue beyond the House's favored sources: gaming expansion and liquor privatization.
Whether any or all of the above are part of the final mix, depends in large part on these two questions:
- What's the final spending number, and;
- How much - if any - will the leaders decide to borrow against the tobacco settlement payments.
Charles Thompson | cthompson@pennlive.com
Open questions on school funding
Wolf proposed a $100 million increase in the main state aid line to public schools and a $75 million increase in spending on pre-k programs, coupled with a $50 million cut in subsidies for pupil transportation.
There are some different priorities here.
Senate Republicans badly want to see the transportation funding restored.
House Republicans cut the pre-k increase to $25 million, and countered with a $75 million increase in the state's tax credits to businesses who contribute to scholarships mostly for private and parochial schools. That would raise the statewide pool for those credits from $175 million to $250 million in 2017-18.
Not big differences in terms of a $12 billion budget. But clearly, there's some final ironing out to do here.
Charles Thompson | cthompson@pennlive.com
Speaking of tax credits
Another open question is the overall 2017-18 tax credit pie.
Wolf proposed re-capturing $100 million in state taxes next year by reducing the more than $400 million written off annually through a potpourri of tax credits that proponents say, at their best, help seed businesses like the concert tour staging facility in Lititz, seen above.
Wolf is proposing to streamline the varied tax-credit programs into a block grant scheme focused on business investment, educational access and community development.
The House-passed budget contained an overall reduction in credits of $25 million, and Senate sources say the GOP leaders there are good with the status quo in this area.
Charles Thompson | cthompson@pennlive.com
What of the agency mergers?
Wolf, you'll remember, proposed consolidating the departments of Human Services, Health, Aging and Drug and Alcohol Programs into one.
He and the House Republicans are all for it, still.
But the Senate Republicans are tapping the brakes.
It's not that they don't share the goal, Corman said last week. It is that, after months of hearings, they believe all sides now really know what the big questions are, and they should take some time to seek answers before proceeding.
Especially given that these are the departments that deal with people - drug addicts, the elderly, the poorest of the poor, victims of child abuse - who really depend upon quality state services.
"We're all in to try and work through it," Corman said. "But we want to try and do it in the right way."
Dan Gleiter | dgleiter@pennlive
The Trump effect?
Former Gov. Tom Corbett would have loved this.
Given clear signals from the new administration in Washington that cost-cutting measures in entitlements program are in, Senate Republicans are expected to bargain this week for some "reasonable and compassionate' modifications to Pennsylvania's Medicaid program.
Details are sketchy, but the ideas include things like Corbett's old work-search requirement for able-bodied adults, or a small monthly premium.
The Republicans stress they aren't trying to deny anybody services who truly needs them.
Rather, it's an effort to control one of the state budget's major cost drivers, just as Wolf has done with the closure of the state prison in Pittsburgh, and Wolf and lawmakers in both parties tried to do with new pension system changes this spring.
Charles Thompson | cthompson@pennlive.com
Waiting their turn
House and Senate Democrats have been bit players in the budget talks so far, as the majority Republicans have largely negotiated between themselves and - to a point - with the Wolf Administration.
That should change in the next week though, especially if Democratic votes are needed to help push gambling expansion, tobacco borrowing, or other high stakes legislation through.
"Wolf's not the type of governor who's going to go outside of the five-party process and cut any major deals, and he proved that with the pension legislation," Mike Manzo, a former top House Democrat staffer-turned-lobbyist observed Friday, referring to the R and D caucuses in both chambers, and the governor's office.
"They (the Democrats) will be at the table when the final deals are done."
Pictured here are Senate Minority Leader Jay Costa, left, and House Minority Leader Frank Dermody.
Charles Thompson | cthompson@pennlive.com
The end game
The 2017-18 budget is supposed to be ready by July 1, the start of the new fiscal year.
Legislative leaders do hope to get a final general appropriations bill to Wolf's desk by June 30, to meet that statutory deadline. They generally need the pressure of that deadline to force the needed compromises that put deals together.
It wouldn't be a shock, however, given the amount of work ahead, if revenue bills and other budget-related legislation falls to early July for completion.
Let the grind begin.
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