By Peter N. Calcara, vice president, government relations
The last week of June typically puts Pennsylvania in the home stretch for its new state budget—well, except for 2015 when that budget dragged on for more than eight months before it was settled. This year likely won’t be a repeat of 2015. Talks between the major stakeholders – the governor and the four legislative caucuses’ leadership teams – have heated up in the final week before the deadline, giving reason to be optimistic that a plan will be in place in the not-too-distant future.
I’ll have more on the budget later, but first let me applaud and thank the 183 members of the General Assembly who voted for, and Gov. Tom Wolf for signing, pension reform legislation, now Act 5 of 2017. This is a major bipartisan legislative accomplishment supported by the PICPA that has gained national recognition. The Wall Street Journal on June 14 wrote, “Pennsylvania took a step toward sanity in worker benefits.” It’s always good when bipartisanship carries the day in Harrisburg.
This achievement would not have been possible without the determination and perseverance of Senate Majority Leader Jake Corman (R-Centre) and PICPA member Sen. Pat Browne, CPA (R-Lehigh), chairman of the Senate Appropriations Committee. Their leadership and unwavering commitment to address Pennsylvania’s most significant fiscal challenge is the reason this legislative proposal is now law.
As with most laws, this one is not perfect, but it is a step in the right direction. Act 5 protects current retirees’ benefits; establishes a defined contribution/benefit pension hybrid system for all new public school teachers, state employees, and lawmakers; and creates greater funding certainty and predictability on an annual basis. Most importantly, it transfers a portion of the fiduciary risk from Pennsylvania and its taxpayers to the individuals who benefit from the retirement plans.
Some will argue that the bill does not go far enough. That may be true, but the simple reason that the bill the legislature just passed did not go further – such as moving all new employees to a 401(k)-styled pension system (for which the PICPA advocated) – is that there were not enough votes to pass a bill with that provision. The Senate tried, and it failed in the House. Moreover, Wolf never publicly gave his approval for such a plan so a veto was possible. If you don’t have the votes you can’t pass legislation. It’s simple math.
Back to the budget.
When Wolf recently outlined his budget priorities, he said a final agreement must include three elements:
- It should be a long-term solution to Pennsylvania’s budget challenges through a combination of savings, efficiencies, and closing loopholes.
- It should protect Wolf’s proposed investments in schools, from pre-K to higher education.
- It should allow government to work more efficiently, deliver better services, and generate long-term savings, including the creation of the Department of Health and Human Services and the creation of the Department of Criminal Justice.
In April, the Pennsylvania House approved a $31.5 billion spending plan (House Bill 218) for the new fiscal year that would spend $246 million less than the current year budget and $815 million less than Wolf’s $32.3 billion proposal. But unlike what we’ve seen with the last two budget negotiations, there is more common ground with this year’s proposals.
Reconciling the difference between the plans should not be an insurmountable task. As the Senate continues to work on its budget, it seems likely that the upper chamber’s plan will include an increase in spending. One particular area of interest to the PICPA is the Department of Revenue’s budget. Wolf proposed a $9 million increase to its general government operations line-item; the House Republican budget flat funds it. The PICPA is urging state lawmakers to increase funding for the department.
Complicating matters is the growing structural deficit. As noted recently by the Independent Fiscal Office (IFO), the fiscal year 2016-2017 General Fund revenues are estimated to be $31.61 billion, $900 million below the estimate issued by the IFO at the beginning of the fiscal year. The deficit has grown to over $1 billion.
After reaching an agreement on the spending level, the next challenge will be how to pay for it. Neither Wolf’s plan or the House budget includes broad-based tax increases, though Wolf did propose some tax changes (a severance tax, sales and use tax changes, and combined reporting). The Republican-dominated General Assembly is generally averse to most taxes. That said, everything is on the table for consideration until it’s not! That means vigilance in the legislative process during this time is critical.
It could be a bumpy ride this week.
The PICPA’s legislative agenda is very much in play in the waning days of June. House Bill 866 (earned income tax collection reforms), and House Bills 1420 and 1421 (amendments to the Solicitation of Funds for Charitable Purposes Act audit threshold and registration deadline) have passed the state House and are currently pending in the Senate. For more information on these issues, please visit PICPA’s government resources webpage. The PICPA is urging state lawmakers to pass these bills before recessing for the summer.
The PICPA government relations team will be monitoring legislative activity all this week and into the following weeks, if necessary. For timely updates, follow us on Twitter.