Corbett continues message of fiscal constraintMidstate employers see predictability, stability in governor's budget
No budget is ever perfect, but the $27.14 billion proposal from Gov. Tom Corbett that again holds the line on taxes and curbs state spending by about $20 million comes pretty close, business leaders said.
By and large, Corbett's "lean and demanding" proposal for 2012-13 picks up where the administration left off in Year One.
In his Feb. 7 address, the governor continued to preach a message of fiscal constraint and creating a business environment where government gets out of the way.
"What we want is to create a climate where our members can create good private sector jobs. This budget is perfectly aligned with that," said Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry.
For years, the business community has advocated that Pennsylvania's government live within its means. In the current budget year and in this budget proposal, spending has been reduced to "fit the realities of our time," Corbett said.
"Every dollar taken in tax is one less dollar in the hands of a jobholder or a job creator," he said. "We will not spend more than we have. We will not raise taxes. We can't ask people to travel the road to recovery and then turn around and add to the burden they must carry along the way."
Last year, Pennsylvania was facing a $4.2 billion budget deficit. To date, the shortfall is about $500 million and projections from the Department of Revenue have the fiscal year deficit reaching $719 million by June 30. Personal income and corporate tax receipts are largely to blame for the down collections.
By continuing to hold the reigns on spending and taxes, business leaders and Republican lawmakers argued the Corbett administration is offering employers more predictability and stability in their respective industries.
"I think that's what Pennsylvania employers see in the governor's budget. He is serious about getting the fiscal issues under control," said Kevin Shivers, state director of the National Federation of Independent Business. "Employers have always had a question of who was going to be asked to pay for something and how much. It made planning for investments and job creation a moving target."
More than 90 percent of an estimated 2,000 NFIB members who participated in a town hall meeting via teleconference last week felt the governor's approach is the right one for Pennsylvania, Shivers said.
This budget sends a strong signal to people, especially those in the business community, Barr said.
"He's given us a clear indication on what he intends to do," he said.
Democrats countered that the sizable cuts to higher education and public welfare hurt the poor and middle class and will lead to higher local tax increases.
The proposal would slash state-related university budgets by 30 percent, while state system schools would be hit with a 20 percent reduction in their budgets. Funding for K-12 remains largely level under a proposed block grant approach that would give school boards more control over how they spend state aid.
"Naturally, cuts like these fall back on to the taxpayer," said Rep. Eugene DePasquale, D-York County. "School districts are pressured to again raise property taxes — the last thing our struggling homeowners need in today's economy."
Corbett's budget proposal also carries on the reinstatement of the capital stock and franchise tax phase-out through 2014, while maintaining tax credit programs such as the research and development tax credit, job creation tax credit, film production tax credit and neighborhood assistance tax credit.
The capital stock and franchise tax would drop to 0.89 mills in January 2013 and be eliminated by January 2014 under Corbett's proposal. The R&D credit would remain at $55 million under this plan.
In addition, this budget proposal lays out new programs designed to spur job creation, such as Jobs First PA, which invests in small and large businesses, offering initiatives through the Department of Labor and Industry to cultivate and create new industries and jobs.
"Pennsylvania competes with every state in the union for factories, offices and corporate headquarters," Corbett said. "The shorter we make the journey from the drawing board to the ribbon cutting, the better our chances of growing jobs."
Cutting the corporate net income tax to 6.99 percent from 9.99 percent to make Pennsylvania more competitive with other states has long been advocated by businesses and lawmakers.
"We cannot continue to increase tax rates and keep businesses out," Barr said.
Addressing the overall business tax structure cannot be fully addressed until spending is under control, said Lebanon County Republican Sen. Mike Folmer. The down economy has forced fiscal responsibility, he said.
The governor also highlighted the Liberty Financing Authority as an economic development tool. The authority would combine nine existing authorities, funds and programs to create a single authority that would pool loan resources to attract additional federal and private sector funds.
"In many cases, commonwealth support is a small fraction of a company's overall business investment and that last piece of the puzzle that brings a job-creating project together," said C. Alan Walker, secretary of the Department of Community and Economic Development.
The authority would total more than $1 billion in assets with nearly $500 million in unencumbered assets to invest in economic development, Walker said.
"Pennsylvania is going in the right direction. We must not turn back now," Corbett said.
Corbett also addressed repairing the state's unemployment compensation system, which is about $4 billion in debt to the federal government. In addition to fixing the system, more legal reform is a top business priority, along with addressing transportation infrastructure funding.
The governor did not say in his address what he would support on transportation funding, despite frequent calls from both sides of the aisle. The governor's Transportation Funding Advisory Commission in August drew up proposals that would add about $2.5 billion for infrastructure over a five-year period.
The commission's plan included uncapping the gas and oil company franchise tax, increasing fees, moving the state police budget over to the general fund and modernization programs at the state Department of Transportation.
"This governor said he's not raising taxes. It's hard to criticize someone who holds to that (pledge)," Barr said. "I'm not disappointed. (However,) the reality is that we're going to have to do something on transportation."
Republicans and Democrats have proposed legislative packages that mirror many of the commission's recommendations.
Prevailing wage reform must be addressed as part of the transportation funding discussion, Shivers said. Simply throwing money at the problem without showing value is the wrong approach, he said.
Several prevailing wage bills have been floating around this session in the General Assembly.
Pennsylvania revenue growth is expected to be about 3.8 percent in 2012-13, but much of that will be consumed by fixed increases in pension and debt costs, according to the Office of the Budget.