Gov. Tom Wolf’s decision Wednesday to let the Republican-led budget bill pass and finally resolve the 2015-16 budget impasse provided business leaders with some relief.
But it won’t last long.
The focus already is shifting to the 2016-17 state spending plan, which is supposed to be done by July 1, as well as other unresolved reforms, including public-sector pension changes, property-tax reductions and privatizing the liquor-store system.
“The looming fight for (the 2016-17) budget concerns us and could further delay the commencement of good projects that create jobs and new capital investments,” said Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp.
PNC warns of additional downgrades
Following the governor’s decision to not sign the budget and let it pass, Pittsburgh-based PNC Capital Markets issued a warning regarding additional credit downgrades.
“We do not expect the budget to come close to solving Pennsylvania’s fiscal pressures, including its structural budget gap, which is sizeable and growing. Without broader policy changes, Pennsylvania’s structural deficit will worsen,” PNC said.
The governor said today that he believes the Republican budget remains $290 million out of balance. “But we have to move forward,” Wolf said.
Last month, the administration presented a budget plan for 2016-17 that calls for increasing the personal income tax to 3.4 percent from 3.07 percent, expanding the sales tax base and adding a 6.5 percent severance tax on natural-gas drilling.
Wolf also wants to increase cigarette and tobacco taxes and a surcharge on insurance premiums and the bank share tax, plus add a new 8 percent tax on promotional play at casinos.
Business leaders, lawmakers react
Bowser said several key economic development programs and future announcements of projects are still up in the air.
“Several Commonwealth Financing Authority meetings have been canceled since the beginning of calendar year 2015,” he said. “We also have not seen any Redevelopment Assistance Capital Program awards announced statewide. These are very critical programs that promote economic development throughout the state.”
Kevin Shivers, executive state director for the National Federation of Independent Business, said the biggest unresolved issue as negotiations pick up on 2016-17 will be the state’s structural deficit, which has been pegged around $2 billion.
But instead of raising taxes to fill that hole, Shivers said there needs to be a serious discussion on state spending.
Auditor General Eugene DePasquale said on Monday that his office identified about $111 million in wasteful spending over the last three years.
“The 800-pound gorilla is the state pension crisis,” Shivers said. “If (Wolf) wants to address the structural deficit, he can address it by tackling the pension problem.”
The two state-sponsored retirement systems have unfunded liabilities that are approaching $60 billion.
“Before small employers give up more money, they want to see that the government is taking serious steps to fix its own fiscal house,” Shivers said.
David La Torre, owner of Harrisburg-based La Torre Communications, a public relations and public affairs firm, said it’s time for the governor and Democrats in the General Assembly to be “intellectually honest in what they want to do.”
PROJECTS IN THE PIPELINE
With the 2015-16 budget finally resolved, Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp., said he expects several local projects – mostly transportation-related – will be in the pipeline for programs tied to the state Department of Community and Economic Development and the Office of the Budget.
He referenced projects in connection with Veteran’s Memorial Park in Hampden Township, development at the Carlisle Airport, urban redevelopment in Carlisle, “Education Row” in Harrisburg and the Cumberland Valley Rail Trail.
“Another good project we can now move forward with the passing on the budget are funds that will allow us to conduct a transportation study looking at transportation-related improvement off I-81 near the Army Heritage Education Center and Carlisle Barracks,” Bowser said. “This will look at transportation efficiencies to better access these two military assets as well as other destinations in the immediate region.”
Most of those projects would fall under the Commonwealth Financing Authority, an independent agency of the DCED, and its Multimodal Transportation Fund and Greenways, Trails and Recreation Program, he said. He also mentioned the Redevelopment Assistance Capital Program, or RACP.
“They talk about addressing the deficit but refuse to publicly say they want to raise taxes to fill it,” said La Torre, who worked in a communications role under Govs. Tom Ridge and Mark Schweiker. “It’s time for everyone to put their cards on the table. Only being half honest is doing a disservice to the process and taxpayers.”
Rep. Kevin Schreiber (D-York) said in a statement that legislative priorities haven’t changed.
“We are on the verge of another credit downgrade,” he said. “We have local school districts that now must wrestle with decisions to raise local property taxes.”
His Democratic counterpart in Lancaster, Rep. Mike Sturla, also raised concerns about future credit downgrades from independent credit rating agencies.
“We’ve seen increased school property taxes, teacher and school staff layoffs, increased class sizes and plummeting test scores in our school districts,” Sturla said. “Pennsylvania cannot afford to go down this same path, but that is the only path that Republicans will allow for now.”
David Patti, president and CEO of the Pennsylvania Business Council, commended Republicans for downplaying what many probably view as a victory in getting a final budget done with no tax hikes.
“The Republican response was pretty measured,” he said. “It’s smart not to spike the football. Now we can all move forward.”
The administration has to expect pension reform will be a major topic in the upcoming budget negotiations, Patti said. And Republicans have to know taxes will be in play.
Getting priority reforms done to address the big cost drivers would give fiscal conservatives more cover if they ultimately give Wolf the added revenue he wants, Patti said. “They want to say they did everything else first.”
Pension reform would help school districts control their costs, which could help keep property taxes in line.