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Questions Remain on Budget, Fiscal Code, Other Issues

Three days into the new fiscal year, the governor has yet to decide if he will sign the budget that passed June 30.  The General Assembly has still not finalized the Fiscal Code.  The State Senate has to decide if it will accept the changes the House made in that bill which reportedly were not part of the agreement between GOP leaders.  Liquor reform amazingly is still being discussed, and pension reform appears to have been punted into football season despite pleas by the Governor to “get ‘er done.”

Late Monday night, the House finished what may become the 2014-2015 state budget, passing a $29.1 billion “no new taxes, on time” budget on a party line vote, after the Senate had passed the same bill earlier by a 26-24 vote.

But then, surprising many observers, Governor Corbett announced that he won’t sign the bill until the General Assembly takes up “meaningful” pension reform legislation.  Corbett had said last week that he would insist on a legislative solution to the pension system liability, which has reached $50 billion and is projected to grow to $65 billion in the next few years.  This year’s general fund budget includes $1.67 billion just to pay the state’s share of pension obligations for state and school employees.  The bill passed by the Senate and the House’s actions on Wednesday don’t appear to meet his demands, and on Wednesday, Corbett upped the ante, saying that the public sector unions have controlled the votes of some Republican members of the two chambers.

The House on Tuesday failed to move the proposed pension reform legislation, and in the process, the legislation was re-referred to the House Human Services Committee on a motion by Rep. Eugene DiGirolamo (R-Bucks) despite the opposition of GOP leadership.  In remarks, he suggested that the issue should be taken up after the summer recess. By Wednesday afternoon, DiGirolamo called a committee meeting and voted the measure back out of committee where leaders promised to take up the issue in the fall.

Meanwhile, the Senate passed a watered-down pension bill that would move the state’s elected officials to a defined contribution plan, netting an estimated $690 million in savings over the next 38 years.

“This is the budget that 26 of 27 Republican Senators and 108 of 111 Republican House members believed was the best course of action,” said Senate Majority Leader Dominic Pileggi (R-Delaware) via email. “It is the governor’s right to decide if he agrees with them or disagrees with them.”

The Senate then passed a Fiscal Code bill (HB 278) that would provide for the budget’s funding, and recessed until September.  But when that legislation reached the House, it was amended several times, which means that with House passage, the Senate will have to return to deal with those changes, and possibly reopen budget negotiations.

Going beyond the sound bite attacks and partisan charges, the legislative leadership got what they could from a bad fiscal picture without increasing taxes, using time tried budget tricks. “We (the Senate) could have supported recurring revenues – but that wasn’t going to get through the House and to the governor. You could sit until August, September, November to try to accomplish that or you could try to put a budget in place that recognizes the revenue you have,” Senate Appropriations Chairman Jake Corman said.

To do that, the Senate revised revenue projections upward for the 2013-2014 and 2014-2015 by $224 million.  Then they included another $40 million that would come from the state’s Enhanced Revenue Collection Account (ECRA), which lets the state Department of Revenue conduct expanded tax return review and tax collection.

They anticipated an additional $95 million from the Governor’s executive order to allow “non-surface impact drilling” on state forest and park land.

The Senate also increased, by $20 million from the House proposal, the amount it plans to transfer from various special budgetary funds, including the Alternative Fuels Incentive Grant program, the Machinery and Equipment Loan Fund, the Small Business First Fund and the Volunteer Company Loan Fund – a total of $246.6 million.

The new budget also assumes the state will pay $50 million less in tax refunds than the House plan approved.  That adds up to $429 million in revenues.  The Senate also put several tax credits back in the bill that the House had written out when it passed HB 2328 last week.

The phase out of the Capital Stock and Franchise Tax is being continued in the coming fiscal year.  According to the PA Business Council, the delays in the phase out of the CSFT have cost Pennsylvania businesses about $6 billion over the original promise from the legislature

Public schools didn’t get all the money they wanted – but that may not be possible.  Education is one of the few areas with a significant increase in the budget bill, with an increase of $300 million in basic education subsidies and support for pension payments.  The budget provides a record-setting amount of state funding for schools at all levels, but the bulk of that is again tied up with support for payment of teachers’ retirement funds.  Included in that total is $200 million for a Block Grant program, intended to give schools more flexibility in where to direct state resources.  Education funding now accounts for $10.5 billion of the general fund budget total.

Déjà vu…

We must note that last July 1, ERG reported that the Republican legislature passed a budget with a spending increase over the prior year, to derision by Democrats who “protested the plan spent too little on education, and ignored the potential of Medicaid expansion, while the House and Senate Republican leaders continued to wrangle and disagree on several major issues.”

In the days leading up to last year’s budget passage, the Capitol was dominated by issues relating to relating to pension reform, Medicaid expansion and liquor privatization.  It was clear that each of the three major players had established differing agendas, and each played a game of policy chicken that failed because of a lack of trust across the Capitol.

Fast forward to late June 2014:  For the past three weeks, and following passage of this year’s no new taxes budget, Democrats are attacking Republicans for minimizing the education funding, demanding the state opt in to the federal Medical Assistance expansion program and refusing to support any reform of pensions or the state liquor system.  The House and Senate have been unable to pass a bill that addresses pension fund deficits and future pension plans. The Senate has been unable to put together 26 votes to pass ANY liquor system improvements. And the House and Senate appear to be at odds on Fiscal Code amendments necessary to fund state government.

The differences between the House and Senate and Governor are a matter of personal styles, politics and ideologies.  The Senate Republicans, with a 27-23 majority, don’t really have a working majority.  Several Republicans cross the aisle to vote with Democrats on an ongoing basis, and in fact, one voted against the GOP budget.  The House GOP, holding a 112-91 majority, has more leeway, but an extremely united group of 30-40 “no tax increase, limited government” members limit leadership’s ability to put 102 votes on the board without significant compromises.

Democrats in both chambers, sensing gubernatorial blood in the water, have steadfastly refused to give up even one vote on critical issues from liquor to budget to pension reform to tax policies.