Dissecting Wolf’s $33 billion plan for Pennsylvania

Gov. Tom Wolf’s first budget address put on an emphasis on his vision for improving Pennsylvania’s present and its future.

He is calling for a bevy of tax increases in an effort to generate additional funding for education, property tax relief, and economic development programs in a more than $33 billion state budget proposal.

Reporters Mary Wilson, Kevin McCorry, Marie Cusick and Emily Previti were at the state Capitol Tuesday for the governor’s address, and they take a look at some of the specifics in the spending plan.

Tax increases and cuts

By Mary Wilson, WHYY

When Gov. Tom Wolf was just a candidate running for office, Republicans biggest knock against him was to call him “tax man Tom Wolf.”

In his first budget proposal, he lived up to the nickname. How else, said the governor, could he follow through on his campaign promise to pump more money into schools while shrinking the $2 billion deficit he inherited?

“We need a historic commitment to education, and we’re going to make it today,” he said. “Now I’m sure that all sounds great, and many of you are probably wondering how we’re going to pay for it.”

A 20 percent hike in the personal income tax. A sales tax jacked up by 10 percent. Also, statewide taxes on cigarettes, their newfangled electronic imitators, and other tobacco products – they’re all part of the Wolf budget. More than $4 billion in new taxes.

But then, there is tax relief.

The governor said he borrowed from Republican proposals increasing sales and income taxes to bring down school property taxes, especially for seniors, and especially in poor areas, or places where the school districts are nearly maxing out residents.

“Overall, my budget will reduce average homeowners’ property taxes by 50 percent, putting more than $1,000 each year into their pockets,” he told the joint session of the General Assembly.

GOP Senate Majority Leader Jake Corman said Republicans can’t start negotiations with Wolf’s proposal.

“Look, I’m not using – this budget — every governor’s budget’s dead on arrival, that’s nothing new … the problem with this budget is it’s not based in reality. And so we have to get it to a starting point where we can begin discussion,” Corman told reporters.

Corman said he doubts even Democrats are completely on board with this plan.

But, Democratic Sen. John Blake of Lackawanna County said it shouldn’t be as controversial as Republicans say.

“There has been a groundswell movement out there saying that people would prefer a tax shift off of property taxes onto consumption taxes,” he says. “The governor has heard that.”

But lawmakers from both parties said they want more details.

Property tax reform is something the GOP has been seeking for years, led by grass-roots advocacy.

Republican House Appropriations Chairman Bill Adolph says he wants to see exactly how the relief package would shake out.

“How does it get paid back? I want to see how the folks in my area do with this money,” he said. ” “I know they’re going to be paying a state income tax. Do the seniors in my district receive a property tax rebate?”

Education

By Kevin McCorry, Keystone Crossroads

Wolf’s plan received uniform praise from education advocacy groups for the high priority he placed on new education funding.

In the first year of the plan, the governor would increase pre-K through higher-ed spending by $1 billion.

Over four years, K-12 spending would get a $2 billion boost.

This in combination with his property tax relief plan would push the state’s share of public education funding from 35 percent to over 50 percent.

“If Pennsylvania is going to be one of the best places to get an education, we can no longer afford to be one of the worst in funding our schools,” Wolf said. “We need a historic commitment to education, and we’re making it today.”

The governor’s ambitious proposal counts on the Legislature approving a new predictable, student-weighted funding formula for divvying up the state’s pot of education cash.

He also hopes to implement reforms on the charter sector — specifically, he’d cut funding for cyber-charter schools, which currently receive funding at levels on par with what is spent by a students’ home district.

“They don’t have the costs of brick-and-mortar buildings, food services, transportation and other services that are associated with traditional public schools,” said acting state Education Secretary Pedro Rivera. “So why are we paying for those services?”

The Republican leaders who control the Legislature decried Wolf’s budget address for its reliance on tax increases.

Senate Majority Leader Jake Corman said the chamber will have to start from scratch, putting a public pension overhaul before any new spending increases.

Wolf’s plan, he said, has no shot of garnering the votes needed to pass.

“It’s a $33 billion budget, which is a 15 percent increase, which makes Ed Rendell look pretty conservative right now,” he told reporters.

Delaware County Republican Bill Adolph, the House Appropriations panel chair, said he’s for increases to pre-K and basic education funding, but said Wolf’s proposals will put too much of a burden on taxpayers.

“My first reaction when I got the governor’s budget was, ‘Wow, an incredible amount of taxes,'” he said.

Wolf anticipated the backlash, ending his address with this message to lawmakers: “If you don’t agree with my ideas, here’s my request — please come with your own ideas. It’s not good enough just to say no and just continue with the same old, same old.”

Although a budget agreement is technically due at the end of June, some are already anticipating an extended negotiation session.

“If we have to fight for more money to come to our schools to educate our children, it’s worth going past the June 30 deadline,” said state Sen. Vincent Hughes, D-Philadelphia. “We can bust through that deadline as long as we do the right public policy.”

Natural gas severance tax

By Marie Cusick, StateImpact Pennsylvania

Wolf did not surprise anyone in his budget address, when he followed through on a major campaign promise.

“It starts by doing what every other major gas-producing state has already done,” he said to applause. “We’re going to place a severance tax on the extraction of natural gas.”

Wolf wants to model the levy on West Virginia, with a tax on both volume and sales.

Drillers would pay a 5 percent tax on the value of the gas, plus 4.7 cents per thousand cubic feet.

He projects it will bring in more than $1 billion per year, which he wants to use for education.

“Natural gas is growing faster in Pennsylvania than in anywhere else in the country,” he said. “Yet, we are the only major producer of gas that does not ask drillers to pay their fair share.”

Natural gas companies currently pay a flat fee every time they drill a well. So far, it’s brought in an average of $210 million per year, with most of the money going back to communities hosting drillers.

Wolf said local governments can keep that money. He’s proposing to set aside $225 million per year from the gas severance tax.

But some county commissioners, including Republican Alan Hall of Susquehanna County, told lawmakers they’re worried new tax will drive away business.

“If you put the severance tax in and it works, then you’re all heroes,” he said. “If you put the severance tax in and the industry walks away, which it can easily do, because it can’t maintain a profit — not only do you lose the impact fee, you lose the severance tax you wanted.”

Meanwhile, Republican legislative leaders including Senate Majority Leader Jake Corman say they won’t discuss new revenues, such as a gas tax, until there is agreement on overhauling the heavily indebted public pension system.

“Everything will have to be weighted and looked at to see how possibly it impacts the economy of Pennsylvania,” he said. “But we’re going to focus on pension reform, because we’ve got to do that first.”

Wolf’s severance tax plan was also met with criticism from fracking opponents and advocates. The industry says it will hurt jobs and investment. Environmental groups opposed to drilling think it will make the state too reliant on drilling.

Economic development

By Emily Previti, Keystone Crossroads

Wolf did not talk in detail about what, specifically, his proposed spending plan would do to help local government.

But a closer look at the numbers shows he wants to invest in cities.

The state Department of Community and Economic Development would get a $78 million boost under Wolf’s spending plan.

Only the multibillion-dollar departments of Corrections and Education are slated to receive bigger general fund increases.

The move was somewhat surprising to Pennsylvania Municipal League Executive Director Rick Schuettler.

“Department of Community and Economic Development – it isn’t as sexy as other things,” he said. “To us, it can be very meaningful, though.”

Schuettler notes the department’s earmark still would be less than half of what it was before the recession, which was more than $600 million.

But the agency runs development programs, which means business growth and job creation.

It also runs Pennsylvania’s Act 47 municipal distress intervention program.

New rules enacted last year set a five-year recovery timeline for Act 47 communities versus the open-ended process of the past.

So, the department might need more manpower as a result. But Wolf’s plan keeps funding flat.

The budget proposal instead adds $1 million to the early intervention program for cities that are at risk for a fiscal crisis – but not quite there yet – such as the city of York.

“An increase in the early intervention program is probably a good thing because more and more communities are going to have to access it,” Schuettler said.

Wolf’s fellow Democrat Lancaster Mayor Rick Gray hopes for benefits from initiatives not explicitly tied to local governments.

“The whole budget address was a commitment to municipalities, I think,” he said.

Gray pointed to education funding increases that could cut property taxes.

Wolf also proposed borrowing $8 million for municipal aid to address deteriorating water and sewage treatment systems, and continuing Act 89 transportation funding by $500 million through 2017.