Gov. Tom Wolf announced the details of his first state budget on March 3, unveiling a $29.88 billion spending plan for 2015-2016 that would increase education funding by $1 billion, invest $1.6 billion for initiatives aimed at creating jobs, fund the state's pension plans, and close an existing $2.3 billion budget shortfall. The budget also calls for increases in the personal income tax and the state sales tax to counter approximately $3.8 billion in property tax reductions that would begin to be phased in in 2016.

Democrats have called the proposal a bold, transformational budget that aggressively addresses the state’s biggest issues, including the under-funded pension system and the over-reliance on property taxes to fund schools. Senate Democratic Leader Sen. Jay Costa (D-Allegheny) referred to the budget as historic.

Republicans, predictably less enamored with the proposal than their Democratic counterparts, said that the spending plan is historic only because of the size of the tax increases.

 

 Wolf's budget proposal would hike the personal income tax from 3.07 percent to 3.7 percent, increase the state sales tax from 6 percent to 6.6 percent, broaden the sales tax to include more services, and enact a severance tax on natural gas production starting on Jan. 1, 2016. Pennsylvania is currently the second-largest natural gas producer without such a tax. Gov. Wolf is proposing a tax equal to 5 percent of the selling price of natural gas plus a charge of 4.7 cents per thousand cubic feet. There is also a proposal to increase the cigarette tax by one dollar per pack with a new tax on tobacco products like cigars and e-cigarettes.

State Rep. John Lawrence, who represents the 13th District that includes most of southern Chester County, said that he is very concerned about the $4.7 billion in increased taxes being proposed.

“That’s a huge increase,” Lawrence said. “I think it’s unprecedented. This budget proposes a lot of new taxes and a lot of new spending.”

While Wolf's predecessor, Tom Corbett, was roundly criticized for austere budgets that didn’t provide a vision for the state’s future, the governor's first spending plan includes a wide range of progressive ideas. There is $45 million in additional funding for the 14 universities in the Pennsylvania State System of Higher Education, an extra $15 million for the Keystone Communities program that includes funding for Main Street and Elm Street programs, and more health care options for seniors. Wolf is calling for an increase of the state's minimum wage to $10.10 an hour.

One of the stated goals of Gov. Wolf’s proposed budget is to start the process of boosting the state’s overall share of education funding toward 50 percent, a level that Pennsylvania hasn’t reached in 40 years. The current share is about 35 percent, one of the lowest in the U.S. By increasing the state's share of education funding, the property tax burden would be eased for homeowners.

Lawrence said high property taxes have long been a leading issue for residents in the 13th District.

“I’m very encouraged to see the governor talk about property taxes,” Lawrence said. “Property taxes are a big issue in southern Chester County.”

Pennsylvania lawmakers have been debating the property tax issue for decades. Lawrence has advocated phasing out the property tax completely because of the burden it places on homeowners, especially senior citizens on fixed incomes, and replacing it with increases in the sales tax and personal income tax. He supported House Bill 76, which would have increased the sales tax from 6 percent to 7 percent, and bumped the income tax from 3.07 percent to 4.34 percent. However, that bill differs from Gov. Wolf’s current proposal because it required a dollar-for-dollar decrease in property taxes for every dollar of increase in revenues from the personal income and sales tax.

Lawrence said that proposed state budget doesn’t include specifics about how the property tax relief funds would be distributed throughout the state.

One element of the proposed budget that Republican lawmakers are expected to support is a reduction in the corporate net income tax from 9.99 percent to, eventually, 4.99 percent, an initiative that aims to improve the state's business climate. Pennsylvania ranks 50th among states in job growth and 46th in revenue growth.

“The governor comes from a business background,” Lawrence said. “Pennsylvania has the highest corporate net income tax and I think he recognizes that, from a business standpoint, that puts the state at a disadvantage. I applaud him for putting this initiative forward.”

Gov. Wolf’s proposal also calls for $3.7 billion in new borrowing to help the state address its pension fund crisis. Pennsylvania’s pension funds are currently under-funded by about $50 billion.

Lawrence said that he’s very leery about the state taking on that much new debt at this time. State Rep. Mike Turzai, the Speaker of the House, recently asked Lawrence to lead an ad hoc task force looking at the state’s longterm debt situation. The task force is expected to propose legislation that will offer some protections for taxpayers later this year.

“The increase in borrowing is very concerning to me,” Lawrence explained, adding that state debt “is something that affects people more than what they might think.”

Lawrence also expressed concerns that the proposed spending plan’s bottom line―$29.8 billion―doesn’t include that $3.7 billion in borrowing and spending. The real amount being spent by the state is closer to $33.7 billion, which is a 16 percent jump.

“The governor’s proposal takes that outside the budget as a line item,” Lawrence explained. “So on paper, it doesn’t look like that much of a spending increase. But when you add in those pension costs, the year-to-year increase is very significant. The budget proposal that we’re seeing here has a dramatic increase in taxes―$4.7 billion―and $3.7 billion in borrowing. I frankly don’t think there’s going to be support for that type of increase―even with members of the governor’s own party.”

Lawrence talked about why it would be difficult for him to vote for a budget with hefty tax increases.

“When I talk to people in the grocery store or at church,” he said, “they are telling me that the state already takes too much of their money. I think we need to look long and hard before we ask the taxpayers to pay higher taxes.”

Before raising taxes or imposing new ones, Lawrence said, other options should be considered―one of them being the privatization of the state’s liquor stores. The State House recently approved a bill, 114 to 87, that would allow for private alcohol sales. The State House previously approved a privatization bill in 2013, but it never garnered support in the State Senate. Privatization could generate $1 billion in revenues.

“Before we consider raising taxes on hardworking Pennsylvanians, I think we need to take a look at other new revenue streams, including the $1 billion we could be leaving on the table [by not privatizing the liquor stores],” Lawrence said.

The unveiling of the proposed state budget sets the stage for what will likely be months of negotiations and compromises. A final budget is due to be approved by the end of the current fiscal year on June 30.

Lawrence said that he is optimistic that the Republican-controlled General Assembly can find a way to develop a spending plan with Gov. Wolf.

“One of Gov. Wolf’s strengths, I think, is that he’s a good communicator. I’ve seen more outreach from him already than I saw from the previous governor,” Lawrence said. “Pennsylvanians did not vote for gridlock. I think there are areas where we can find common ground.”