The state’s new fiscal year has officially started and in what has become a signature of the Wolf administration, the governor let the spending bill become law without his signature for the third consecutive year. Yet, despite the $32 billion General Appropriations bill going into effect on July 10, the Commonwealth is still without a completed budget deal. That’s because, in another move that is becoming all too familiar, the General Assembly passed a spending plan before an agreement on how to pay for it was finalized.
At the time of this writing – 21 days into the new fiscal year – lawmakers are still working on reaching a resolution on the revenue package. Making an already difficult situation more challenging is the fact that elected officials must decide how to come up with $700 million in new revenues for the current fiscal year while at the same time addressing a $1.5 billion shortfall from the 2016-17 fiscal year that just ended. Among the options on the table are a combination of borrowing from the state’s share of the National Tobacco Settlement Fund, gaming expansion and additional liquor reforms that would increase the private sector’s ability to sell wine and spirits.
Meanwhile, there have been increasing calls from some lawmakers for tax increases – including placing an additional tax on the natural gas industry. During his budget address in February, Gov. Tom Wolf proposed enacting a 6.5 percent severance tax. According to a report by the state’s Independent Fiscal Office, if enacted, the governor’s proposal would be the highest effective severance tax rate in the nation. As I have previously written, the notion that the natural gas industry doesn’t pay its fair share of taxes is a fallacy. In addition to the business taxes that every other industry pays, the natural gas industry is also subject to an impact tax – the revenues of which go to local governments and have helped to keep this vital industry in the Commonwealth competitive. We continue to stress to lawmakers who have been calling for a severance tax that while other states might have one in place, they also don’t have an impact tax and they don’t have Pennsylvania’s burdensome tax climate. The PA Chamber is leading a coalition of diverse organizations against severance tax efforts because it will have a negative impact on the Commonwealth’s economy and competitive edge. Instead, we’re prescribing pro-growth policies, including pipeline and infrastructure development and a predictable permitting process, which will help to increase direct and indirect jobs in the natural gas industry and generate more tax revenue for the state.
Throughout the budget process, the PA Chamber has been warning lawmakers against enacting policies that will hurt the Commonwealth’s economic climate and fiscal stability. A recent study by the Mercatus Center at George Mason University ranked the Commonwealth a dismal 45th among the states in terms of its fiscal condition. This significant drop over last year is largely due to the state’s key budgetary obligations – including pension and health care benefits. While we actively supported Act 5 – the recently enacted pension reform law – there remains more work to be done to sufficiently address the state’s pension crisis. The new law addresses pension benefits going forward – helping to stop the problem from getting worse – however, it does nothing to tackle the up to $74 billion unfunded liability that currently exists. In addition to growing cost drivers, the state is facing other economic challenges. Our job growth rate has lagged well behind the national average, with U.S. News and World Report placing us 39th among the states in terms of overall economy. Another cause for concern is the fact that not enough residents of working age are staying in the Commonwealth to keep our economy churning. As elected officials work to find a compromise on a revenue package, the PA Chamber will continue to advocate for legislation that will help address the state’s growing cost drivers and our regulatory and business climate; making Pennsylvania more attractive to investors and job creators – which will help to turn our slow-growth economy around.