The State Representatives for Columbia and Montour counties are optimistic that finalizing a budget for the 2016-17 fiscal year will be quicker than the process for the current year’s budget. Despite a structural deficit of $1.4 to $1.8 billion in the proposal, Representatives David Millard and Kurt Masser feel this year’s negotiations are better. Their comments were made to members during a breakfast program held Friday, May 6th at the Pine Barn Inn.

Jennifer Reis with the PA Chamber of Business & Industry outlined Governor Wolf’s $33.29 billion budget, which represents a 10.9% increase in spending from the finalized 2015-16 plan. Included in the proposal are increasing the personal income tax rate from 3.07 to 3.4 percent, retroactive to January 1, a severance tax on the natural gas industry, and taxing a number of products and services that are currently not taxed. Reis noted that the budget includes no significant reforms to the State’s two public pension systems, or moves toward privatization of the liquor system.

Representative Millard highlighted the increasing burden of the pension plans. In the upcoming fiscal year, more than $2 billion will be dedicated to pension obligations. Over the next four years, those costs will increase by more than $1 billion. Rep. Millard has co-sponsored legislation which would put all new hires in a 401k plan, which would ease the burden long-term.

Representative Masser reiterated that it’s past time for Pennsylvania to get out of the liquor sales business, which only generates a 3% profit. “If any CEO was running a monopoly and could only return three percent, I don’t think your days in that position would be long,” said Masser. Privatization of the system could generate significant revenues.  

Masser also stated that this year’s budget negotiating process is better. During an abbreviated, two-day session week last week, the state House positioned H.B. 1999 – the General Appropriations bill for the 2016-17 fiscal year – for a final vote. After bringing up the bill on the House floor, lawmakers withdrew all of their amendments with the understanding that their funding priorities would be addressed at a later date.

The PA Chamber also expects the proposal to increase the minimum wage to be revisited. Earlier this year, Governor Wolf increased the minimum wage for State employees to $10.15 per hour. The Independent Fiscal Office projected in November that an increase in the minimum wage to $10.10 per hour could result in 31,000 lost jobs in Pennsylvania and 500,000 nationwide. The PA Chamber has been advocating for workforce training programs and tax credits to help low wage earners rather than mandated wage increases. Millard and Masser said they are still looking at the potential impacts and solutions to the minimum wage discussion.

The state’s Independent Fiscal Office released an analysis last week that anticipates the tax increases proposed by Gov. Tom Wolf in his 2016-17 budget plan would generate $2.66 billion for new state spending. This is slightly less than the $2.7 billion that the governor’s budget office estimates would be the full amount of tax hikes under his proposal. The IFO estimates that the proposed retroactive Personal Income Tax increase would generate the most revenue, netting $1.27 billion.

The IFO analysis also examined the impact of the governor’s proposed severance tax – a 6.5 percent levy that maintains the current impact fee but allows drillers to claim impact fee payments as a credit against the severance tax. The IFO notes the significant discount that Marcellus drillers are being paid compared to that of other major national hubs, and projects that this discount will remain in effect for the next several years. Because the governor’s proposal does not allow for deduction of post-production costs, the effective rate of the proposed severance would be the highest among other states that, along with Pennsylvania, lead the country in gas production: Ohio, West Virginia, Texas and Oklahoma.

FO also examined the employment effects of raising the state’s mandated entry wage to $10.15 per hour. The analysis projects a loss of nearly 30,000 jobs due to the increase, with the job losses felt disproportionately by part-time employees, as well as a “slower rate of hiring compared to a counterfactual where minimum wage did not increase.”

The final piece of the 2015-16 budget becomes law following an announcement by the Wolf administration last week that the governor will not veto or sign H.B. 1589, the Fiscal Code Bill. Per the Pennsylvania Constitution, legislation passed by the General Assembly automatically becomes law if the governor does not act on it within 10 days.