State Budget Agreement Holds the Line on Taxes

Edited from the PA Chamber of Business & Industry

Ahead of the June 30 Constitutional deadline, the General Assembly and Wolf administration reached agreement on a $39.78 billion budget for the 2021-22 Fiscal Year.  While a reduction in the Corporate Net Income tax rate is not included in the deal, the final budget does not impose any new or additional tax increases on employers. The looming expansion of overtime eligibility was also repealed as part of the agreement.

The final spending plan is a far cry from Gov. Tom Wolf’s original proposal which included a significant increase to the Personal Income Tax.  Budget negotiations were aided by higher than anticipated revenue collections, as well as the influx of $7 billion in federal stimulus aid.

Representing a $7.7 billion, or 24 percent, spending increase over the previous fiscal year, lawmakers pointed to a growth in mandated spending – primarily under the Department of Human Services – as well as the use of one-time revenue sources in previous state budgets as the reason behind the significant increase.  In an attempt to reign in additional spending growth under the DHS, the Fiscal Code contains language prohibiting the department from creating new programs without legislative authority.

The budget allocates $2.52 billion to the state’s Rainy Day Fund and sets aside $5 billion of federal stimulus funds to be utilized in future budgets.  The budget also includes a $300 million increase in education funding and a $40 million increase to the Educational Improvement Tax Credit.  Of the federal stimulus dollars, $50 million has been designated towards the Pennsylvania State System of Higher Education system redesign and $282 million to help nursing homes and assisted living facilities with COVID related costs.  An additional $372 million has been appropriated to the governor’s office to assist with COVID-19 response.

Among the numerous policies included in budget-related legislation was a one-sentence provision to repeal an administration proposal initiated in 2018 to dramatically and continually expand the range of employees eligible for overtime pay (i.e. the requirement to pay time-and-a-half for every hour over 40 worked in a given week).