It’s what everyone in the Pennsylvania Capitol is asking: How will Gov. Tom Wolf balance his budget proposal without a major tax increase?
Most details of the Democratic governor’s proposal, to be released Feb. 7, are still under wraps. But Wolf says it will be the first he has proposed without a sales or income tax increase that, in his first two years, he viewed as necessary to offset a huge, long-term deficit he inherited and help fix huge disparities between public schools.
Spending in the fiscal year starting July 1 could exceed $33 billion, and the big problem is this: Analysts are projecting a $2 billion-plus hole in the state’s finances.
Without a major tax increase, Wolf insisted he will not resort to the sort of “smoke and mirrors” that the Republican-controlled Legislature has preferred to tax increases to paper over Pennsylvania’s persistent post-recession deficit.
In the past few years, that has meant siphoning one-time cash from off-budget programs, booking revenues or savings that may never materialize and putting off big payments to counties and insurers.
“I’m trying to do this in a responsible way,” Wolf said Thursday.
It’s also not clear to what extent Wolf will try to boost aid to public schools, perhaps his top priority.
The potential for a lean budget has stoked alarm in some quarters. That includes county governments, which have felt squeezed by the state for more than a decade into footing a larger share of the cost to handle abused and neglected children and services for the addicted, mentally ill and intellectually disabled.
“When someone says, ‘You need to find ways to be more efficient,’ there is only a very small margin there, and we are already down to the bone,” said Douglas Hill, the executive director of the County Commissioners Association of Pennsylvania.
When state aid for those services does not increase, the result is effectively a statewide property tax increase, imposed by county governments, Hill said.
So far, Wolf has given some hints about how he will balance his budget proposal.
For starters, Wolf has announced steps to trim employee complements in executive-branch agencies, consolidate administrative functions and close halfway houses and two prisons. His administration is also working to cut the cost of managing care for the most expensive Medicaid patients, including the elderly in nursing homes.
Those steps, however, are viewed as marginal compared with the deficit.
Wolf has said he will renew his push for a tax on Marcellus Shale natural gas production, something lawmakers have rejected for nearly a decade now. He could take a swipe at hundreds of millions of dollars in tax credits that benefit private schools and companies. He could target some $250 million in slot-machine gambling tax revenue that is pumped into the horse racing industry.
He could try to raise taxes on narrow categories of income, or revive his failed 2015 proposal to restructure how the corporate net income tax is calculated to remove loopholes the administration says allow some profits to go untaxed.
He could look to cash in on one-time license fees by opening up the state-controlled system of wine and liquor wholesaling to private companies. Or he could try to introduce online access to Pennsylvania Lottery games or add keno to its lineup.
Wolf’s more conservative fiscal approach comes as budget pressure is growing from new directions.
The state is on the hook to start paying off a school-construction bond. It is trying to reverse the flow of highway construction dollars to an expanding state police budget. And environmental groups warn that funding is at an all-time low for Growing Greener, a program central to efforts to improve water quality and open space.
It also comes as pressure on Wolf is growing.
His 2018 re-election bid is in sight, and the Legislature returned in 2017 with bigger — and potentially more conservative — Republican majorities than the ones that already fought off billions of dollars in tax increases sought by Wolf.
Top GOP lawmakers call a tax increase a last resort and they have suggested that they will put a budget bill on Wolf’s desk by the June 30 fiscal-year deadline — whether Wolf likes their product or not.
With public schools still absorbing rising costs and the effects of funding cuts in 2011, district officials are concerned about seeing no increase in state aid next year.
“No one has a magic answer, I get that,” said Mark DiRocco, the executive director of the Pennsylvania Association of School Administrators. “But level funding schools is not an appropriate response and it’s not responsible. We need to make sure our kids get a quality education.”