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Analysts: Budget beneficial to Pa. businesses, taxpayers

Flanked by Republican lawmakers, Gov. Tom Corbett signs the 2011-12 state budget on June 30 in the Capitol rotunda. Photo/Amy Spangler

Despite big spending cuts, especially in higher and basic education, midstate business leaders see Pennsylvania’s fiscal 2011-12 budget as an investment in the commonwealth’s future.

The $27.15 billion blueprint, signed by Gov. Tom Corbett just moments before the midnight deadline July 1, curbs spending by 4.1 percent and includes no new or increased taxes.

“I think it’s a big win for taxpayers, job creators and workers,” said Kevin Shivers, state director for the National Federation of Independent Business. He also cited the administration’s push for unemployment compensation reforms, lawsuit abuse reform and steps taken to improve the regulatory climate in Pennsylvania.

The budget lowered some business taxes, including the reinstatement of a capital stock and franchise tax phase-out that will net about $70 million in tax relief.

Job creation and film production tax credits also were continued, along with a research and development tax credit program that was bolstered by $15 million.

In addition, the spending plan streamlined economic development programs, including workforce training, and eliminated “WAMs,” or walking-around money, a term for accounts from which legislators doled out grants to favorite causes in their respective districts.

“If I have my choice between holding spending down and preventing tax increases, or putting money in government programs for economic development and job training, I will take holding spending down and tax increases because that benefits everybody,” said David Patti, president and CEO of the Harrisburg-based Pennsylvania Business Council. “Money and programs only benefit a few companies that take advantage of them. Given the choice, if I can’t have both, let’s keep spending down.”

Signature moment

Corbett’s first budget will be viewed as a signature moment for his administration because it begins to define the new business climate in Pennsylvania, Shivers said.

“There is plenty more to do to make Pennsylvania better,” he said, anticipating future discussion on comprehensive tax reform including a reduction in the corporate net income tax. “I think the governor established a tone that Harrisburg is not going to conduct the same business that it has over the last eight years.”

He established his priorities early on upon taking office this year and stuck to his guns, Shivers said.

Others agreed, including G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin & Marshall College in Lancaster. Madonna also is director of the Franklin & Marshall College Poll.

“(Corbett) was determined this budget would accomplish certain policy objectives. He achieved that.” Madonna said. “Spending is 4 percent less, and there are no new taxes, it was done on time and includes the back-end school referendum and lawsuit-abuse reform. He got a budget without a (Marcellus) Shale fee.”

The lynchpin of the budget deal ended up being the school referendum, known as Senate Bill 330. The bill, which was signed with the budget, requires voter approval if school districts intend to seek property tax increases above the rate of inflation.

Corbett said he would not sign a budget without the referendum bill in place. He also said he would veto legislation levying a fee on natural gas drilling. The governor said he wants to wait until his Marcellus Shale Advisory Commission issues its report on costs to communities impacted by drilling.

A push for taxpayer-funded school vouchers so parents can send their children to a public or private school of their choice was the only priority piece Corbett did not get ironed out before the two-month summer recess.

The antithesis of former Gov. Ed Rendell, Corbett accomplished many of his early objectives by not using the bully pulpit, Madonna said.

Momentum builder

Democrats said they had no say and did not vote for the Republican-led budget. They were critical of the spending plan for not using more of the state’s 2010-11 surplus, which ended up at $785 million, to restore cuts.

Several argued the large cuts in education might mean thousands of jobs lost and it threatens economic recovery in Pennsylvania.

The spending plan reduced money for public schools by about 10 percent, on average, and by almost 20 percent for state-supported universities. The Pennsylvania State System of Higher Education approved a 7.5 percent tuition increase, largely because of the budget cuts. The 2010-11 tuition increase was 4.5 percent.

The net decrease in funding to basic education is about $900 million.

“That’s an enormous loss to districts,” said Ron Cowell, president of the Harrisburg-based Education Policy and Leadership Center. He said he expects larger class sizes and fewer programs in the fall as schools lay off and furlough teachers to make it up.

For the health of Pennsylvania’s economy, this is bad for an educated workforce and educated citizenry in the long run, he said.

Still, Madonna said the budget should help Corbett build momentum. Whether it helps boost his job performance numbers in the polls has yet to be seen, he said.

Cuts in education are not going to be popular; and no impact fee, which the majority of voters support, could negatively impact him, Madonna said.

“I do think this budget sets the tone for future budgets,” said Dave Black, president and CEO of the Harrisburg Regional Chamber and Capital Region Economic Development Corp.

Pennsylvania still has to deal with its multi-billion dollar unemployment compensation debt with the federal government and upcoming pension obligations, he said.

“No tax increases and trying to get government to live within its means generally is a good thing,” Black said.

The perception for a long time has been that Pennsylvania is a heavy tax and union state, he said. This budget, which is only the third in the last 40 years to cut state spending, helps change that, Black said.

“I think we’re sending the right message,” he said. “It’s not going to turn things around overnight. It takes a number of years to change perception.”

Corbett has been consistent with his message and objectives and this budget should help build his credibility with taxpayers and the business community, Black said.

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