Budget Deal: The Good, the Bad, and the Ugly

Marc Stier |

It’s time for Speaker of the House Mike Turzai to come back from his fundraising trip and call the Pennsylvania House of Representatives together and belatedly finish the Pennsylvania budget. A bipartisan majority in the Senate has passed a bill to fund the budget. While it is not perfect, if Speaker Turzai will allow it to come to the floor for a vote, it appears a similar bipartisan majority can pass it in the House as well, preferably with some amendments to it’s most problematic features.

And, let there be no doubt, there are many problematic features in both the revenue package and the the companion bills passed by the Senate. But before we look at the problems, we should look at what has been achieved this year. The Republican leadership in the Senate has recognized something we have been saying all year: Pennsylvania has a revenue problem, not a spending problem. And thus a number of Republicans voted for a package that raises $571 million in new recurring revenues to close our budget deficit in this and subsequent years. They recognize that we need new taxes to maintain the level of spending on education, human services, environmental protection, and infrastructure that Pennsylvanians demand, let alone to close the investment deficit in providing services in all those areas. At a time when the Speaker of the House and other Republicans continue to live in a fantasy budget-land in which spending should always be cut and taxes never raised, it is an achievement to have the Republican Senate Majority embrace reality and the need to raise new revenues.

While these new revenues are not sufficient to close our public investment deficit, they do ward off the danger of not funding the budget enacted earlier in the month. After a year in which Pennsylvania spent $1.5 billion more than it took in, we simply must fund this year’s budget. Failing to do so would not only put the state in an even deeper hole — and threaten our credit rating — but the state-related colleges and universities would not be funded and Governor Wolf would be forced to make deep cuts to the only parts of the budget where he can — education, human services, and environmental protection.

A second achievement is to enact a severance tax on natural gas drilling. The new severance tax is not perfect — far from it. The tax is set too low. It will only increase the effective rate of taxation in the state from about 1.3% to 2%, far below BOTH West Virginia’s 5% and Representative Kate Harper’s proposal, which would have been nearly 5% this year (with a 3.5% severance tax on top of the existing impact fee). That is why the tax only will bring in only about $80 million in new revenue this year. And it is based on the quantity of gas produced rather than the price of gas, although the tax rate does vary based on the price. That amount will increase in future years, but not enough. Pennsylvania still needs to enact a severance tax at a rate similar to that found in other states.

While these are important achievements, there is much to be concerned about in not only the tax code bill, but the welfare code bill as well. Most of the new revenues come from gross receipts taxes on natural gas, electricity, and cell phone bills. Those taxes will ultimately fall most heavily on consumers with the lowest incomes. Rather than fixing our upside-down tax system, these taxes make it worse. Republicans have been saying all year that they don’t want to tax working people and the middle class. They could have raised revenues without doing so by embracing our Fair Share Tax or by a larger severance tax, which would be paid by out of state consumers, or by raising the personal income tax. Instead, they have put the burden of new taxes on the people they promised to protect — and done so in the least transparent way.

In addition, the Tax Code passed by the Senate contains troubling environmental provisions. One would give a new panel, mostly appointed by the General Assembly, the power to disapprove basic environmental regulations. This is clearly aimed at efforts by the Department of Environmental Protection (DEP) to regulate, among other things, emissions of methane gas, an extremely dangerous greenhouse gas. In addition, the bill requires DEP to review environmental permits, including those for fracking wells, within a set amount of time without providing the funding the department needs to do so. The result may be the issuance of permits without proper review. Finally, the tax code requires DEP to set up a third-party review process for environmental permits, which privatizes an essential government function, creating opportunities for undue industry influence over the permitting process.

There are some steps the Administration can take to minimize the danger of these provisions by, say, doing all it can to get  permit review done in the required time. Still, these provision are disturbing and we encourage the House of Representatives to reject them.

As we have pointed out elsewhere, we also encourage the House of Representatives to reject provisions in the Welfare Code that threaten to cut Medicaid benefits and eligibility and create work requirements for recipients of Medicaid that have no purpose other than to deny those who need, and are entitled to, health insurance to access to it.

Also, the Senate’s school code vehicle, SB 178, contains language that allows public school employees to be fired for economic reasons and removes all due process from layoff provisions in collective bargaining agreements. This explicitly prohibits collective bargaining agreements from preventing or even addressing economic-based layoffs. Beyond that, these provisions utilize an exceedingly flawed evaluation system as a means of determining layoff procedures.

AND this language applies only to professional educators at public school districts, not to those at charter and cyber charter schools that are funded by the taxpayers in those Public School Districts.

The Senate proposal also contains a proposal to borrow from the tobacco settlement fund to close the hole in last year’s budget. We remain concerned about the proposal but, given the political and fiscal limitations the state is working under this year, there is little alternative to it.

Compromise is difficult, especially when there is such a large gap between the sensible public investment and tax proposals put forward by Governor Wolf, most Democrats and some Republicans on the one hand, and the radical, extremist proposals advanced by Speaker Turzai and his allies in the House Republican caucus. But, by electing Governor Wolf and a Republican dominated General Assembly, Pennsylvania voters have not chosen between these two different visions of the best public policies for the state. And the system of government set up by the Pennsylvanian Constitution gives enormous power to small groups who are willing to keep saying “no,” as Speaker Turzai and his allies have done throughout these budget negotiations.

The result is a compromise that, from our point of view, is problematic in many ways. This is not the kind of budget we believe Pennsylvania should have. But the acknowledgement of reality on the part of some Republicans is an important achievement. Raising revenues to fund the budget enacted it is far better than not doing so at all.

And there is still an opportunity to get a better budget deal in the House. Follow us on Facebook or sign up for updates from the Pennsylvania’s Choice campaign to learn how you can make your voice heard in Harrisburg to help make that happen.