Pennsylvania lawmakers eye higher hotel tax in budget fight

HARRISBURG — Pennsylvania's hotel tax rate would nearly double and Philadelphia and Pittsburgh would have the nation's two highest combined state-and-city hotel taxes under a proposal surfacing Tuesday in the House of Representatives to fill state government's $2.2 billion projected deficit.

The idea blindsided tourism and hotel advocacy groups. It emerged rapidly Tuesday from closed-door budget negotiations after a tide of opposition drowned one days-old proposal — a tax on commercial warehousing — and House GOP leaders last week blocked a new tax on Marcellus shale natural gas production.

Floor debate and votes were possible Tuesday night.

The House and the Senate returned to session this week in the latest bid to end a three-month-long budget stalemate. One sticking point has been the Republican-controlled Legislature's inability to produce a tax package big enough to satisfy Democratic Gov. Tom Wolf in his effort to pare down Pennsylvania's stubborn post-recession deficit.

Wolf isn't saying whether he'll support the new proposal.

Wolf's office said Tuesday night that a tax on Marcellus shale natural gas production is the most responsible source of recurring revenue to help balance the budget.

Raising the state's hotel tax from 6 percent to 11 percent would put Pennsylvania in the top 10 states in hotel taxes, according to figures from the National Conference of State Legislatures.

Combined with local hotel taxes, a 5 percentage point increase would give Philadelphia and Pittsburgh the nation's first- and second-highest hotel taxes, according to data compiled by HVS, a New York-based convention and hospitality industry consultant. Philadelphia's rate would rise from 15.5 percent to 20.5 percent, and Pittsburgh's, along with all of Allegheny County's, would rise from 14 percent to 19 percent.

The revenue from the hotel tax increase is a relatively small piece — an estimated $165 million a year — of an overall revenue package negotiated behind closed doors by Wolf's office and top lawmakers. But it is of prime importance because it is one of the few revenue sources that can be counted on every year.

“This is a major component,” said House Majority Leader Dave Reed, R-Indiana. “This is the component that has been holding up the budget process for some time now.”

House Minority Leader Frank Dermody, D-Allegheny, said the state will still be competitive.

“I'm sure tourists will continue to come to Pennsylvania, and we need revenue,” Dermody said.

The tax provision would be tucked into hundreds of pages of budget-related legislation that remains largely under wraps and awaiting action after being negotiated in secret.

The proposed package is the latest stage of discussions since lawmakers on June 30 overwhelmingly approved a $32 billion budget bill, about a 3 percent increase, without any agreement on how to fully fund it.

Last month, Wolf had to postpone large payments to school districts and Medicaid insurers as the state's bank account scraped bottom, while a downgrade by the Standard and Poor's credit ratings agency lowered Pennsylvania into the bottom five states it rates.

The revenue package otherwise leans heavily on borrowing, one-time fund transfers and expanding casino-style gambling.

Borrowing would provide the biggest piece of the puzzle, nearly $1.3 billion. The total cost, interest included, could exceed $2 billion over 20 years. Another $500 million could come from off-budget programs that provide everything from medical malpractice insurance to funding for mass transit agencies and environmental cleanups.

The package would substantially expand the availability of casino gambling in Pennsylvania, already the nation's No. 2 commercial casino state, in hopes of drawing millions more dollars in license fees from casino owners and taxes on gambling losses.

The state's licensed casinos could bid on up to 10 licenses to operate a smaller casino with hundreds of slot machines and table games in an area that is far enough away from existing casinos, lawmakers said.

Meanwhile, casinos could pay millions of dollars for a license to open an online portal for people in Pennsylvania to gamble on casino-style games on the internet, while truck stops that meet certain conditions could install slot machine-style terminals.