Calling it “a different type of budget” during his address, Wolf said his 2015-16 budget proposal “is rooted in the values of fairness, inclusion, and common sense … but above all, it is also a budget that recognizes that Pennsylvania will not improve until we rebuild the middle class.”
But rebuilding that “middle class” comes with a cost: nearly $4.7 billion in new taxes.
Wolf seeks to spend nearly $34 billion in a plan that hits on his oft-cited goal of “jobs that pay, schools that teach and government that works.”
While his administration says the total spend is $29.9 billion – which is nearly $1 billion more than the current state budget – that amount does not include public pension spending of about $1.75 billion, which Wolf transferred off the General Fund books, so to speak, into a “restricted account to guarantee all future employer obligations are paid in full,” nor does it represent another $2.1 billion the governor intends to spend – also from a restricted account – to lower property taxes.
That makes the spending plan total $33.8 billion, not $29.9 billion, and a 16.6-percent hike in spending, not the 3.1-percent increase advanced by the Wolf administration.
State Budget Secretary Randy Albright disputed the $33.8 billion spending number when asked during a Tuesday morning budget briefing, saying the property tax transfer was for tax relief not state spending and the pension transfer was to “to pay our pension obligation.”
Albright said the $29.9 billion figure “is a pretty accurate portrayal of how we’re meeting our General Fund obligations,” which he also characterized as “an austere budget.”
The Wolf plan seeks to pay for the additional spending with a host of new or raised taxes and fees – a total of nearly $4.7 billion – with a nearly $2.4 billion hike of the personal income tax (a rate hike from 3.07 percent to 3.7 percent) for 2015-16 leading the way, followed by a $1.55 billion hike of the state’s sales tax, which, for most of the state, would go from 6 percent to 6.6 percent, and see a larger amount of items subject to that tax.
Albright argued the budget’s proposed tax hike was only a net $2.5 billion tax increase in 2015-16 because about $2.1 billion of the new revenue would be used to fund some property tax relief.
The budget proposal also hikes taxes on natural gas drilling and cigarettes, creates a new tax for other tobacco products, and also includes more than $4 billion in planned borrowing, although the administration said it has plans to cover the debt service costs for that borrowing.
Wolf said his budget “actually reduces the total tax burden on average middle-class homeowners by 13 percent” by using “tax reforms that are smart, pragmatic, and fair.”
“We will do it with changes that will help eliminate the deficit, protect the middle class, and set the table for robust private sector growth,” Wolf said.
Legislative reaction following Wolf’s budget address was decidedly partisan, with General Assembly Republicans criticizing his plan, and House and Senate Democrats praising what they called a “bold” and “aggressive” plan.
House Speaker Mike Turzai, R-Allegheny, called Wolf’s budget “disrespectful of hard-working people” because “he wants to take so much out of their pockets in both a Personal Income Tax increase of over 20 percent, a sales tax increase of over 10 percent and an expansion of the sales tax.”
Senate Majority Leader Jake Corman, R-Centre, when describing Wolf’s budget and what he called a proposed $12 billion hike in taxes during the next two years, quipped to reporters: “It makes Ed Rendell look like a conservative.”
Republican leaders, who said Wolf’s plan is a tough sell with the GOP legislators in both chambers, openly questioned if many Democratic lawmakers would support the plan.
However, Democratic leaders appeared thrilled on Tuesday with the budget proposal. During Wolf’s address, applause lines were led by his Cabinet and legislative Democrats.
Wolf got plenty of compliments from Senate Minority Leader Jay Costa, D-Allegheny, who gave the governor credit “for proposing an aggressive approach aimed at solving Pennsylvania’s most pressing problems.”
“It is bold; it is responsible; and, it is necessary in light of the structural deficit that exceeds $2 billion, the gaping education funding hole and jobs deficit that Pennsylvania faces,” said Costa.
“There’s no way to sugarcoat it, the past four years were a disaster for Pennsylvania,” House Minority Leader Frank Dermody, D-Allegheny, said. “It was four years of policy based on outdated and ineffective ideology and budgets based on one-time gimmicks and unrealistic expectations.
“Fixing the more-than-$2 billion structural deficit that resulted is going to be a tremendous challenge,” said Dermody. “But Governor Wolf has shown he is ready and willing to face that challenge head-on.”
“In many ways, this budget is about righting the wrongs of the past,” added House Appropriations Committee Minority Chairman Joe Markosek, D-Allegheny.
As for the proposal’s many components, Wolf went big – as expected – on education, with a plan to boost spending for all education by $1 billion, including $400 million earmarked for basic education, $100 million for special education and $140 million for higher education.
“This budget increases our investment in public schools at every grade level,” said Wolf during his address. “It also recognizes that our responsibility to provide a great education does not begin at kindergarten and end with high school.”
As a gubernatorial candidate, Wolf promised to increase education spending, but as he did on the campaign trail, on Tuesday the governor indicated the additional spending is a longer range goal, with more to come in his future budgets. That goal? Increase overall funding for pre-K through 12th grade by $2 billion during the next four years.
And the governor said his $3.8 billion “Property Tax and Rent Relief” program, in conjunction with the proposed additional education funding, will help “increase the state’s share of funding for public education to 50 percent” for the first time in 40 years.
The governor also has his own vision for stimulating the state’s economy, which involves cutting business taxes, expanding the number of businesses impacted by some of those taxes, and offering a few new programs focused on creating jobs – including a $675 million bond program that would invest in economic development initiatives.
The governor also put a plug in for a higher minimum wage, which he would like to see go up to $10.10 per hour from its current $7.25 per hour level.
“If we want to be a state where the next generation can envision a bright future, Pennsylvania has to offer a level playing field where entrepreneurs can be confident their risks will be fairly rewarded,” said Wolf. “Workers have to be fairly rewarded, too.”
And on public pensions, which many legislative Republicans maintain must be addressed before they’ll consider any new revenues, Wolf served up a $3 billion pension obligation bond which he said will save the state $10 billion during the next 30 years. Taken in conjunction with some other reforms he intends to impose on the state’s pension systems, he estimates the state will get $900 million in savings during the next five years, with school districts receiving another $370 million during that time frame.
Other components of the budget include:
• Wolf will continue to undo Healthy PA in favor of an expansion of the state traditional Medicaid program, which he estimates will save the commonwealth about $500 million (the Corbett administration estimated Healthy PA would save the state $616 million in FY2015-16).
• The budget will also continue to expand the home- and community-based care options available to Pennsylvania’s elderly population – the governor unveiled that piece late last week.
• An additional $49.5 million in spending has been proposed to continue to reduce the waiting lists for individuals with disabilities; $1.5 million has been added for domestic violence services, with another $876,000 for rape crisis services; and $7.5 million has been proposed to help combat heroin use.
• The budget proposes $9 million in new spending to allow for the training of four State Police cadet classes, which Albright said would raise the trooper complement “to its highest level in history.”
• $25 million is to be dedicated to Redevelopment Assistance Capital Project (RACP) for Veterans’ housing.
• At least $150 million in potential savings through the Governor’s Office of Transformation, Innovation, Management and Efficiency (GO TIME).