With less political drama than typically accompanies the budget process, the Pennsylvania General Assembly approved on June 25 a $40.8 billion spending plan for the 2021-2022 fiscal year (FY) that began July 1. State lawmakers passed the budget with bipartisan support: 43-7 in the Senate and 140-61 in the House. Gov. Tom Wolf signed the budget bill – which does not include the tax changes he had proposed – on June 30.
The General Appropriations Act (Act 1A/Senate Bill 255) is just one in a package of bills that make up the complete budget. The other bills include the following:
- “Housekeeping” appropriations (Acts 7A-15A/House Bills 1508-1516) involve agencies such as the Public Utility Commission, Gaming Control Board, Small Business Advocate, State Employees’ Retirement System, and the Public School Employees’ Retirement System.
- Nonpreferred appropriations (Acts 2A-6A/Senate Bills 265-269) are appropriations to any charitable or educational institution not under control of the commonwealth that requires the affirmative vote of two-thirds of the members elected to each chamber of the General Assembly.
- The Fiscal Code (Act 24/House Bill 1348) dictates specific enabling language implementing the General Appropriation Act.
- The Administrative Code (Act 70/House Bill 336) provides for the conduct of executive agencies.
- The Tax Reform Code (Act 25/House Bill 952) provides funding for state operations, programs, and services.
- The Public School Code (Act 26/Senate Bill 381) dictates policy initiatives and provides guidance in the area of public education.
According to an analysis prepared by the Pennsylvania House Democrat Appropriations Committee, General Fund revenues for FY 2020-2021 totaled $40.4 billion, $3.44 billion above estimate. The committee notes that about $1.8 billion of total revenue collected the past fiscal year was due to pandemic-related timing shifts of due dates for personal income tax (PIT) and corporate net income tax (CNIT) final payments from April and May 2020 into July and August of the following fiscal year. This year’s budget transfers an estimated $2.6 billion of the $3.4 billion surplus into the state’s Rainy Day Fund.
The official revenue estimate for FY 2021-2022, certified by the secretary of revenue and the secretary of the budget, is $42.536 billion, an increase of $2.14 billion, or 5.3%, over FY 2020-2021. This expected increase is driven by miscellaneous nontax revenues, which include $3.841 billion of American Rescue Plan Act (ARPA) funds transferred to the General Fund. Tax revenues, according to the Appropriations Committee, are projected to decline by $1.17 billion, or 3.0%, year over year as the timing of tax and fee payments returns to a more normal pattern.
Public education is a winner in this year’s budget. There is a $200 million increase in the Fair Funding Formula, $100 million to support underfunded school districts through the new Level Up initiative, $50 million in special education funding, $30 million for early education, $20 million for Ready to Learn, $11 million for Early Intervention preschool, and $5 million for community colleges. Basic education funding is now $7.06 billion, the single largest line-item in the state budget.
The new Level Up program provides for an allocation to qualifying school districts proportionately based on their basic education funding weighted by student count, multiplied by the median household income index, and the local effort capacity index.
The budget distributes nearly $500 million in ARPA Elementary and Secondary School Emergency Relief (ESSER) funds, including nearly $250 million to school districts, charter schools, and cyber charter schools for learning loss; $50 million for summer enrichment programs; $50 million for comprehensive after-school programs; and $43 million to intermediate units and career and technical centers.
The 2021-2022 budget does not include any broad-based tax or fee increases, but the passed Tax Reform Code (Act 25/House Bill 952) makes a variety of changes, particularly in credit and incentive programs. The net cost of these changes is estimated to be $33.9 million in 2021-2022 and $92.9 million in 2022-2023. Here are some of the most notable changes:
- Requires electronic payment of personal income tax for payments more than $15,000 (excluding withholding payments). The penalty for noncompliance is capped at $500.
- Sales tax exemption for computer data center equipment.
- Sales tax exemption on helicopter simulators.
- Tax credit integrity language in response to a 2019 grand jury investigation.
- An apportionment change to the Manufacturing Innovation and Reinvestment Deduction.
Additional changes include the restructuring of internal qualifications of the film tax credit and concert tour tax credit, date changes to Keystone Opportunity Expansion Zones, and several other minor changes and technical fixes.
The Department of Human Services will receive $728 million for the Child Care Stabilization Program. The department will establish an application process for interested childcare providers. The funds can be used for costs such as payroll, recruitment and retention of staff, rent, utilities, personal protection equipment and cleaning supplies, goods and equipment necessary to maintain or resume operations, and mental health support for children and employees.
The budget allocates $282 million in ARPA funds to help nursing, assisted-living, and personal-care homes with costs related to personal protective equipment, staff testing, and other pandemic-related expenses. The spending plan also includes money for services to assist 832 people living with intellectual disabilities and dedicates $9.3 million in Tobacco Settlement Fund dollars annually for pediatric cancer research.
To support road and bridge projects, the 2021-2022 budget allocates $279 million in ARPA funds for transportation infrastructure.
The budget provides for the Pennsylvania State Police to train two new cadet classes this year, which will add up to an additional 180 troopers. Additionally, $30 million has been allocated for violence intervention and prevention.
Recognizing a need to return to economic stability and public wellness, the budget sets aside $372 million of federal relief funds for use in Pennsylvania’s ongoing pandemic response.
With passage of the budget and a few other pieces of legislation, lawmakers adjourned. The Senate will return to session on Sept. 20 and the House on Sept.27.
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Peter N. Calcara, CAE, is PICPA's vice president of government relations. He can be reached at firstname.lastname@example.org.