Final Week of Budget Hearings Focus on Pension Debt, Proposed Tax Increases

From PA Chamber of Business & Industry

The House and Senate Appropriations Committees hosted their third and final week of budget hearings last week with the heads of state-run and state-related agencies.

House Appropriations Committee members kicked off last week by meeting with the Public School Employees Retirement Commission and the State Employees Retirement Commission. PSERS Executive Director Glen Grell said the state has finally begun making its full actuarially required payments for PSERS – the first time in 15 years that the Commonwealth is making its full payment. Grell reported that the unfunded liability for PSERS is $37.3 billion; it is $18.8 billion for SERS. This level of unfunded liability is clearly unsustainable, and is a main reason why Pennsylvania has experienced credit rating downgrades in recent years.

Revenue Secretary Eileen McNulty defended the $2.7 billion in tax increases that are included in Gov. Tom Wolf’s 2016-17 budget proposal. Specifically, she told the Senate Appropriations Committee that Pennsylvania is one of only two states that does not tax all tobacco products; and that some businesses may be able to absorb the proposed tax on property and casualty insurance without increasing rates. In terms of the proposed severance tax on natural gas, McNulty said one of the things having the biggest impact on natural gas sales is the ability to get the gas to markets. She anticipated that once pipeline capacity under construction comes online there will be significantly more growth in sales of natural gas. She added that the administration isn’t proposing to change the current impact fee, which would be deducted from the tax and would keep the effective rate of the tax lower. She explained the idea is to keep it a broad based tax that is easily calculated. She said there would not be a deduction for post-production costs. McNulty also opined that Pennsylvania previously went too far in its lowering of the Bank Shares Tax. During the hearing, Sen. Bob Mensch, R-Montgomery, argued the “deficit is outside the budget” and rejected arguments that increasing taxes is the way to balance the budget. McNulty responded some of the trends, such as increasing pension payments and aging demographics, point out the reasons why the Commonwealth needs revenue and must have a revenue structure to meet demands. She further pointed out the governor has offered a proposal that would address rising property taxes.

The defense of the administration’s $33.29 billion budget proposal continued into Thursday, when the House Appropriations Committee held its final day of hearings with the Governor’s Budget Office.