Times are flush in Pennsylvania — at least, according to Democratic Gov. Tom Wolf’s latest budget proposal.
He’s pitching a $36.1 billion spending plan to the Republican-controlled legislature. That’s a nearly $1.5 billion increase over the amount lawmakers plan to spend this fiscal year, not counting several hundred million dollars in cost overruns from this year’s $34.6 billion budget that the new budget will have to fill.
The spending increase encompasses requests for more money in — among other things — several basic and higher education categories, community-based care for disabled people, and state park staffing and Chesapeake Bay cleanup.
The governor also wants new investments in gun violence prevention, manufacturing and technology jobs, childcare, and grants allowing employers to provide workers with things like transportation.
This is the sixth budget plan Wolf has pitched, and over the years he has learned — under threat of gridlock — not to include the sorts of sweeping sales and income tax increases the state’s Republicans invariably oppose.
This year, Wolf said, new broad-based taxes aren’t necessary.
“Five years ago, this budget process was an exercise in masochism,” he told lawmakers. “We all came here bracing ourselves for the painful choices we knew we’d have to make in order to play the hand we were dealt. Today, I present to you a budget that reflects a renewed sense of confidence in Pennsylvania’s future.”
Optimistic revenue projections
Wolf projects that by the time this fiscal year ends in June, the state will have brought in 2.4 percent more in revenue than it did last year.
He estimates the next fiscal year will be even better. Counting hypothetical revenue that he anticipates would come from his proposals for a minimum wage increase and overhaul of the state’s corporate tax structure — both of which face considerable opposition from Republicans — Wolf’s budget assumes a 4.5 percent increase in revenue for the 2020-2021 fiscal year.
He said the plan reflects his vision for a Pennsylvania where “no problem — not the cost of health care, not the challenge of rebuilding our schools, not the scourge of gun violence — no problem is too big for us to come together and solve.”
Republicans didn’t contest Wolf’s rosy revenue projections.
“I think it could be conservative,” Senate Republican Appropriations Chair Pat Browne said of the governor’s underlying economic assumptions. “I think it’s a possibility we might have a couple million dollars more…predicting these things is tricky, but there are very positive signs out there.”
But Browne said he and other GOP leaders don’t think the state can count on this kind of economic growth much longer.
“If we see another downturn, we’re back at it again,” he said, referring to the budget impasses and funding cuts that have dogged Pennsylvania in recent years. “If we’ve learned anything in the last ten years, it might be a good idea to shore things up.”
One way to do that would be putting more money in the commonwealth’s rainy day fund. In the 2018-19 fiscal year, after a long period of stagnation, Wolf put the budget’s enture $316.9 million surplus into the fund. It currently contains a total of $341.3 million.
This time around, Wolf said he’s committing 25 percent of the projected surpluses from this fiscal year and next to the rainy day fund — $1.1 million and $1.5 million, respectively.
Other GOP leaders were more blunt in reacting to Wolf’s proposals.
“This budget is more about spending, more taxes, more debt,” Republican House Appropriations Chair Stan Saylor said, adding that he thinks it is “long on aspirations and short on details.”
Saylor and others were specifically unhappy with proposed increases to Department of Human Services spending, including roughly $600 million the administration overspent this fiscal year.
Republicans also flagged Wolf’s request for nearly $90 million more for the Department of Corrections, which would go to inmate medical care and various prison-related expenses. They noted that because a few state prisons have closed in recent years, they were hopeful spending would go down.
J.J. Abbott, a spokesman for the governor, noted many of the state’s DHS expenses are federally mandated. He blamed GOP lawmakers for unreasonably reducing spending allowances in last year’s budget negotiations.
Several of Wolf’s biggest pitches are holdovers from previous years.
This is his sixth budget address in a row that has included a boost to Pennsylvania’s $7.25 minimum wage. Like last year, the governor is urging GOP lawmakers to pass legislation increasing the wage immediately to $12 per hour, and then gradually to $15 by 2026.
“Twenty-one states have already increased their minimum wage this year alone,” Wolf said. “Nobody outworks the people of Pennsylvania. They deserve the same fair wage.”
Republicans have always maintained the $15 ask is too high. Late last year, the Senate compromised on a $9.50 minimum wage, but the House hasn’t given any indication it will follow suit.
Corporate income tax
Wolf is also renewing his call for a reduction in Pennsylvania’s corporate net income tax, from the current 9.99 percent to 8.99 percent at the start of 2020, followed by an incremental reduction every year until it hits 5.99 percent in 2024.
Republicans have wanted to see the CNIT reduced for years, but have always been cagey on the second portion of Wolf’s plan, which is projected to replace the lost revenue and add a few million extra dollars to the general fund.
Mandatory combined reporting, as it is typically known, would apply to any company that does business in Pennsylvania. It’s a tax collection method designed to keep businesses from sheltering assets in low-tax states to skip paying some corporate state taxes.
“We’ve been working on this issue for some time,” Senate GOP Leader Jake Corman said. “We haven’t been able to get there yet. We think it’s important to lower the CNIT… but lowering business taxes on one hand and then raising them on the right isn’t good for business in Pennsylvania.”
State police fee
Another key Wolf proposal is back in slightly modified form: a fee for municipalities that rely on state police for their law enforcement needs. It is designed to save the state police money and gradually get the department to stop drawing dollars from the state’s Motor License Fund, which is supposed to be used primarily for road and bridge construction projects.
Two years ago, Wolf suggested assessing a flat fee on municipalities that rely heavily on state police; last year, he proposed a sliding-scale fee based on population.
This year’s proposal is more complicated. Every municipality in the state would be individually assessed based on how much the state estimates they rely on state police, and fees would be levied based on that estimate, plus population and income. Details on the potential size of the fees aren’t included in the budget proposal.
Wolf’s education ideas are a mix of old and new. His request for $100 million in basic education funding is less ambitious than previous years, as are his proposals for special education and preschool funding.
For the first time, he wants to require school districts to provide free, full-day kindergarten, though he didn’t estimate how much it would cost them. And he is pitching a sweeping new scholarship program that could provide aid to roughly thousands of students attending the 14 state-owned universities, by drawing money from the commonwealth’s Race Horse Development Trust.
That proposal was one of the first to draw industry condemnation, with the Pennsylvania Equine Coalition saying it would be “disastrous for the agricultural industry, accelerate farm bankruptcies, and destroy the horseracing and breeding industries in Pennsylvania.”
Wolf also wants to cut funding to charter schools. He said the state’s charter system is “in desperate need of reform” and said he intends to “close the loopholes” and “level the playing field.”
In addition, he included a proposal for a billion dollars in new grants for lead and asbestos remediation in schools. Republicans didn’t oppose the idea outright, but noted it would add a considerable amount to the state’s debt load.
Several of the items Wolf included in his budget speech don’t have a clear impact on state finances, but speak more broadly to his legislative agenda. Gun control was the most notable.
Wolf called for universal background checks in firearm sales, mandatory reporting for lost or stolen guns, better school counseling services, and red flag laws.
Republicans said they are on the same page as Wolf in many areas — like investing in workforce development initiatives and making sure schools are safe. But they said they aim to keep the conversation on their terms.
“We will work with this governor and our friends on the opposite side of the aisle to continue to work on our success,” Senate Majority Leader Corman said. “Limiting the governor’s encroachment into the private sector.”
Lawmakers and Wolf have until the end of the fiscal year, June 30, to find consensus.