On Feb. 4, 2020, Pennsylvania Gov. Tom Wolf detailed his vision for the 2020-2021 state budget in an address to the General Assembly. He discussed the cost of higher education, worker access to transportation, obstacles stopping would-be entrepreneurs from starting businesses, and more. But what were the most important points for PICPA members? To shine a light on the issues that will affect you, we spoke with Peter Calcara, PICPA’s vice president of government relations. For more information on legislative issues, make sure to check out Calcara’s PICPA Legislative Update webinar on Feb. 20.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

On February 4, 2020, Pennsylvania Governor Tom Wolf detailed his vision for the state's 2020 budget in an address to the Pennsylvania General Assembly. He discussed everything from the cost of higher education, to worker access to transportation, to the obstacles that stop people from starting businesses. However, what we are most interested in today is what the budget means to PICPA members. To get that information, today we will talk to Peter Calcara, PICPA's vice president of government relations.

Can you give us an overview of what Governor Wolf proposed in his 2020/2021 budget?

[Calcara] So, this is Governor Wolf's sixth budget to the General Assembly. This one is a little bit more – I don't want to say ambitious – but a significantly higher spend number. The governor's proposing a spend of $36.06 billion, which is a little over two billion or 4.5% increase over the current-year budget. That's a pretty big jump. However, if you factor in supplemental appropriations for the current 19/20 fiscal year, which run about $500 to 600 million is what legislators are saying, that number comes down to still 1.4, 1.5 billion. Still a significant spend number for the year.

A couple of the real high-level program areas that the governor's calling for increased spending is once again public education. This has been a cornerstone of the past five years and it's not going to change. The question is where will the numbers actually fall out? In the public education funding area, Governor Wolf is proposing $100 million increase in basic education funding. Another $25 million increase in special education, another 25 million in pre-K counts, and 5 million in headstarts. That's a starting point. You're going to see an increase in those programs. Question is of how much.

More funding for workforce development initiatives: this is kind of a carryover from the last budget or two for Governor Wolf, which has received a lot of bipartisan support. This will focus on apprenticeship programs, job training and STEM programs, and schools. The governor is also proposing something new. He's calling it the Nellie Bly Tuition Program and this is, I believe, it's a $204 million program. Grants will be awarded to targeted full-time students at PSSHE. And PSSHE is the Pennsylvania State System of Higher Education. Those schools, Shippensburg, Millersville, Slippery Rock, those, I think there are 14 state-owned schools who agree to stay in Pennsylvania for the same number of years as they receive the grant. That's one new initiative.

Then, no broad-based taxes. Again, this is kind of a theme of the last couple years. The governor's not proposed any broad … there are some taxes in it, which I'll talk about a little bit later … but no broad-based taxes.

What's the reaction been from lawmakers over on the hill?

[Calcara] The reaction has been pretty positive. The spend number, the increased two billion is a lot, particularly on the Republican side. Really all depends on what side of the political spectrum you're viewing this. Democrats had positive comments for the governor's proposal, although you will hear grumblings in the hallways about, “Well, it doesn't go far enough. He should be spending more in this area or that area.” That's on the Democratic side. On the Republican side, it's all about what their priorities are. Everybody likes the no-tax increase, no broad-based tax increases. But they are concerned about that spend number, that increase. Pat Browne, chairman of the Senate Appropriations Committee, who's also a PICPA member, right after the governor's budget address commented that the increase is pretty significant and that could create some challenges if revenues do not continue to come in as projected. The proposal wasn't totally trashed, quite frankly, as sometimes we do see, so I think it is an election year, which adds to everybody wants to get out of Harrisburg as close to that July 1st deadline as possible. Overall, I think it was generally well-received.

As we said, there's a lot of interesting things coming out of the budget and the budget address, but we're looking to get the ideas over to PICPA members and what's most important to them. What would you say was the main takeaway from the budget for them?

[Calcara] I think the fact that there are no broad-based tax changes contemplated in the budget. Now that doesn't mean none will happen. That's just the starting point. The one big change, and again this is something the governor's proposed I think in each of the last five budgets is moving from a separate company reporting requirement for corporations to a combined reporting requirement. That is a pretty significant change and, as I've told groups, the landscape on that is beginning to change. It was first proposed under Governor Ed Rendell and it was always an issue, particularly targeted by Democrats who argue that corporations are not paying their fair share in Pennsylvania and we need to close the loophole. That has been the last couple of years under Tom Wolf, has been tied to reducing the corporate net income tax, which is one of the highest – at 9.99% – in the country.

He has it once again, combined reporting, tied to a decrease in the corporate net income tax over a four- or five-year period, it would decrease to 5.99% by 2025. The Department of Revenue has put a price tag … going to combined reporting would increase revenues about $240 million in the first fiscal year that it would be implemented. The plan calls for combined reporting to be implemented by January 1 of 2021, so midway through the fiscal year, the 2021 fiscal year. If combined reporting were to be enacted, a full fiscal year would be roughly $500 million according to Revenue Department estimates.

Other than that, we're still sifting through. A lot of times when you look at a $36 billion budget, there are hidden things in the fine detail and that's what we're still trying to sift through at this point.

What are the next steps in the budget process?

[Calcara] Budget hearings begin next week in the both the House and the Senate Appropriations committees. They begin next Tuesday, February 18, and the Department of Revenue and the Independent Fiscal Office are the first two departments to testify. I think the same day on Tuesday before the Appropriations Committee. That really begins the vetting process. As I just mentioned, we're still combing through the details of this and trying to get as much information from different sources. We just don't go to one group; we look at the House Democratic Appropriations Committee as much as the Senate Republican Appropriations Committee and sift through what they're putting out because their messages are all different.

The next three weeks will be a vetting where the different budget, where the different department secretaries and bureau directors come and appear before lawmakers and talk about their specific line items, their budget proposals, and have to defend them before the General Assembly. That's really where, if you're going to find surprises, a lot of times you find them in those hearings.

What about the PICPA government relations team? What are you guys going to be doing? And what role are you going to be playing in the process as we move forward with this?

[Calcara] We'll be monitoring the hearings. Obviously, we'll be at as many of those hearings as we can and serving really as a resource for lawmakers and staffers as they sift through some of this stuff. I talked about combined reporting. There are a lot of questions about what is combined reporting? I know a lot of people talk about it, but really the knowledge, the understanding of what it actually means in practical terms is … we need to fill that void. We'll serve as a resource for lawmakers on those types of questions, those kind of technical areas. And just be a strategic advisor where necessary.

Then, of course, reporting to members about what we hear at these hearings. A great way to find out a little bit more, we have a Legislative Update webinar scheduled for Thursday, February 20, at 9:00 a.m. for members to dive into the budget a little bit more. And we'll also have a week and a half of budget hearings to report what we're hearing back to members.

The other point – and this is so important; a lot of times it just gets lost in the message – is that we have a unique voice in this process. The PICPA, the CPA community, has a very unique and strategic voice. If we're not using it, it's gone. There's not going to be another group that is talking about some of these points. Again, I harken back to combined reporting because it's the big issue and it seems to be gaining some traction. If we're not explaining what it actually means – and we're neutral on the issue – but if we're not explaining what it means and what it means to the businesses that have to implement it, then nobody else is going to be able to fill that void.