So Where is Pennsylvania and What is the Actual Status of our State Budget?
The lower chamber’s Republican majority leaders, along with a healthy number of their rank and file conservatives, did not favor the Senate-passed (and Governor-endorsed), new-taxes revenue package which passed in late July, so they set out to find alternatives. For nearly six weeks during late July and August a small band of House conservatives, mostly from central and southcentral PA, formed a task-force and set out to travel the state on fact-finding meetings, collectively scouring the state budget to identify existing revenue funds which they viewed as sufficiently fungible to be redirected from their allotted purposes back to the budget ledger. This, they argued, is how they aimed to fill the $2.2 billion revenue gap in the $32 billion spending package approved on July 10. Their proposal, which was unveiled last week and is also inclusive of other actions such as reducing various tax credit programs, claimed to achieve $2.44 billion in redirected savings, thus avoiding any need for higher taxes or borrowing.
Though the task-force should be credited for their admirable work, they immediately ran full speed into what political scientists like to call the Miles Law: Where you stand depends upon where you sit. Even before the House reconvened session this week, virtually all House Democrats and a considerable number of House Republicans were privately and publicly voicing displeasure with the task-force’s proposal as their preferred funding priorities (i.e.; economic development, agricultural conservation, park and conservation funds, 911 emergency improvements, public transportation, etc.) were slated to be raided.
As of the afternoon of September 12th, it was clear the original task-force proposal would not move forward. But by that very same evening elements of a compromise were developing which would borrow ideas from all sources:
- From the task-force, the compromise retained some scaled-back revenue redirection which would still generate $600 to $700 million. However, they reversed course on raiding public transportation related funds, instead taking a much-reduced amount in order to win over southeastern Republicans and otherwise pursued lesser amounts from many other funds so as to retain the integrity of active programs favored by various members.
- And, though different than originally envisioned in the Senate revenue package, House Republican leaders successfully won agreement to borrow against future funds paid to the state by the federal Tobacco Master Settlement Agreement. This would bring in roughly $1 billion.
- Finally, another $400 to $500 million from various sources including expanded gaming, a transfer from the Liquor Control Board, reductions from prior year budgets, and a transfer from the Joint Underwriting Association (a state-created malpractice insurer of last resort) also made its way onto the compromise table.
Pulling it all together, House Republicans compromised and passed a reasonable counter-offer late evening September 13th that, on its face value, meets the mark in bridging the $2.2 billion budget gap and does so without new taxes. Though their revenue package passed through committee along party lines and eventually passed the full House by a razor-thin majority vote (103-91) as 15 Republicans sided with their Democratic colleagues in opposition, its movement signals that the proverbial ball is at least moving down the field and that renewed and serious negotiations will continue with the Senate and Governor Wolf.
With budget negotiations seemingly back on track, a spokesperson for Senate Republican leadership said the upper chamber will “thoroughly examine” the House proposal and “act swiftly” to address the urgency of the delayed state budget revenue package.
While there will undoubtedly be many details to be ironed out, particularly regarding the various fund transfers as well as other expenditures that were stripped from the fiscal code, one overarching point of contention that will likely dominate the debate is the relatively low amount of recurring revenue in the House Republican plan. Yes, the plan offers an alternative path forward than that already passed in the Senate. However, all other parties needed to complete this budget (Senate Republicans, Senate and House Democrats and Governor Wolf) have all recognized and insisted on the need to find more recurring revenue to deal with the structural imbalances that have turned Pennsylvania into a perennial deficit-state. More importantly, even S&P has strongly suggested that it will further downgrade Pennsylvania’s bond rating if the state budget revenue package relies too heavily on one-time fixes and does not find more recurring revenue. And recurring revenue means new revenue; new revenue means some form of fees or taxes from a new source.
What’s Still At Stake
This means that as budget negotiations resume the week of September 18th in the Senate, among the slew of little issues, a larger and more elusive one will surely remain on the table: a tax on the Marcellus Shale industry. It will continue to be championed by those demanding additional, recurring revenue. And while it’s no secret that the Senate already voted in support of new taxes on the industry, a growing number of House Republicans – mostly from the southeast – have become increasingly agitated by its absence from negotiations in their chamber. Many of those GOP moderates feel emboldened on the issue too.
After all, they compromised on key provisions in the plan that passed the House in order to move the debate forward but with an understanding that they would eventually have the opportunity to vote on a Marcellus Shale tax. Without those moderates from the Philadelphia suburbs the House GOP would still be spinning their wheels. Senate leaders know this too, not to mention House Democrats and the Governor, and none are likely to walk away from a Marcellus Shale tax easily.
So, get ready for an active week ahead and I will be reporting on significant updates as they occur.