*Updated 2/4
The kickoff to Pennsylvania’s annual General Fund budget battle began a bit differently this year. The Governor‘s budget address on February 4th, always the official first step in the process, was one day late due to the snowstorm. Also, due to the pandemic, the address was delivered virtually instead of in front of a joint session of the PA General Assembly. This was the Governor’s seventh, and next to last budget address, as his second and final term will conclude at the end of next year. The Governor’s proposed $37.837 billion budget would invest in workforce and economic development initiatives, as well as in basic and higher education.
A number of the Governor’s proposed legislative policy proposals were familiar, such as more funding for public education and an increase in the minimum wage. One new policy proposal was the legalization of marijuana. A highlight of the address was the Governor’s COVID-19 pandemic recovery plan for the Commonwealth’s economy.
On the tax front, the Governor proposed a major increase to the Personal Income Tax and a decrease to the Corporate Net Income Tax.
Early Childhood and Public Education
Perennial budget priorities of the Governor are child care and education. His proposals in these areas are:
- $87.2 million in federal funds to continue the increase to Child Care Works base rates
- $11 million to add 2,000 slots for Early Intervention services for children ages 3 to 5
- $25 million for Pre-K Counts and $5 millionfor Head Start to fund enrollment for an additional 3,271 children
- $1.35 billion increase in Basic Education Funding
- $200 million increase to invest in student achievement
- $200 million increase in Special Education Funding
- $199 million to create a tuition scholarship program for students attending a state-owned university
- The Governor once again asked for an increase to the minimum teacher salary from $18,500 to $45,000.
- His proposal lowers education tax credit administrative set-asides from 20 percent to 5 percent to push up to an additional $36 million into EITC scholarships.
- While the Governor once again voiced continued recognition of the importance of school choice, he nevertheless proposed dramatic and burdensome changes to the charter school law that he suggests will save school districts $229 million per year.
Workforce and Economic Development
The Governor’s COVID-19 pandemic recovery plan for the industries and workforce most impacted by the virus include $3 billion to stabilize the economy and recover from the pandemic
- Funding would:
- grow apprenticeships
- breakdown barriers to employment
- expand broadband
- support the supply chain
- invest in distressed communities
Additional proposals include:
- $1.5 million to the Industrial Resource Centers and $1.5 millionto the Partnerships for Regional Economic Performance Network to create a talent pipeline and invest in innovation
- $1 million to grow the Pennsylvania Agricultural Surplus System
- $500,000 to help prevent military base realignment and closure
The most controversial proposal in this part of the Governor’s budget proposal is to begin the process of increasing the minimum wage to $15 per hour with an increase to $12 per hour on July 1, 2021.
Tax Law Changes
A 46.25 percent increase to the Personal Income Tax is the major new tax proposal.
- Change the Personal Income Tax by expanding the special tax forgiveness credit for workers earning under $84,000 per year and increasing the tax rate from the current 3.07 percent to 4.49 percent effective July 1, 2021
- Close the corporate Delaware loophole
- Reduce the Corporate Net Income Tax to 8.99 percent on January 1, 2022 with incremental reductions to 5.99 percent by 2026
Criminal Justice Reform
Enact additional reforms to Pennsylvania’s criminal justice system including:
- Provides fair funding for Pennsylvania State Police coverage
- Improves community policing and accreditation of police departments
- Bail and pretrial reforms to reduce biases and the disproportionate impact on minorities
- Reforms probation to limit supervision to the level of risk to the community
- Expands eligibility for medical release from prison
- Builds supports for indigent defense
- Calls for compensation for wrongfully convicted individuals
Intellectual Disabilities and Autism
The Governor also advanced a proposal to invest additional funding to serve 832 more individuals with intellectual disabilities and autism which will help to reduce the size of waiting lists. Providers such as SPIN and Keystone Human Services will, in theory, be able to expand their services to this population. But the Governor is not proposing a critically needed funding increase in the rates the state pays to the direct service professionals who care for these people, thereby making it increasingly difficult to recruit and retain these frontline professionals.
Additional topics reflected in the Governor’s budget proposal for the coming fiscal year were infrastructure spending, particularly broadband; and government reform through a new government ethics proposal.
In Summary:
The Governor’s address is the starting point for Pennsylvania’s 2021-2022 budget debate and legislative action. Republican leaders expressed immediate concerns over significant parts of the budget plan. The legislature, beginning with the House and Senate Appropriations Committees, will now focus on the details of Governor Wolf’s proposed budget. At Pugliese Associates, we will do the same and continue to share more details with our clients in the coming days, as well as advocate accordingly for their relevant concerns and potential impacts.