A complex plan
An additional hurdle for Gov. Tom Wolf's tax-shifting plan is its complexity, observers said.
A budget is due by law on July 1, and Wolf's plan contains proposals that would require separate, potentially complicated, legislative action:
• Severance tax on natural gas
• Mandatory combined reporting for national companies
• Pension obligation bonds
• Liquor Control Board “modernization”
• Consolidating Corrections and Board of Probation & Parole
• Change to minimum wage
• Cyber charter schools funding change
• Charter school audits required for final payment
• New school accountability
• Removing $1.7 billion in school pension payments from the general fund
• Issuing $500 million in bonds based on the value of scheduled PennVest loan repayments
HARRISBURG — Democratic Gov. Tom Wolf’s proposed shift from property taxes to higher income and sales levies has virtually no chance to pass the GOP-dominated legislature as is, lawmakers and analysts said Wednesday, though he struck a theme appealing to many Republicans and Democrats.
“The short answer is no,” Joseph DiSarro, political science department chairman at Washington & Jefferson College said about the prospects for passage of Wolf’s $30 billion-plus budget for 2015-16. “It’s just an incredible overhaul of the tax system of the commonwealth.”
Greg Jordan, who works for the Senate Appropriations Committee, said every budget has a lot of moving parts: “I don’t know as this one has more than any other, but the complexity of the moving parts … these are big policy changes.”
Yet the budget contains a “common denominator” of real estate tax cuts paid for with income and sales taxes, said Bev Cigler, political science professor at Penn State University’s Harrisburg campus. She said Wolf needs to “grab the bully pulpit” to educate the public that his plan is not simply to increase taxes.
Lawmakers signaled that negotiating a budget would involve addressing two longstanding issues: reforming the state’s pension systems and privatizing liquor sales.
Wolf told the General Assembly that his plan “challenges the status quo and takes on old problems in fundamentally different ways.”
“We will do it with tax reforms that are smart, pragmatic and fair,” he said.
Rep. Mike Vereb, R-Montgomery County, summed up some GOP sentiment at a pro-death penalty rally, saying Wolf “proposed the financial death penalty” in his budget address.
”If (Republicans) reject it, let them put up their own plan,” said Sen. Vincent Hughes, D-Philadelphia.
Wolf outlined $4.7 billion in new revenue to cover $2.1 billion in property tax cuts, close a $2.3 billion deficit, pay for $1.2 billion in mandatory new spending, and spend $400 million more on public schools and $140 million more on higher education.
To pay for the spending increases and property tax cuts, he would raise Pennsylvania’s income tax from 3.07 percent to 3.7 percent and hike the sales tax from 6 percent to 6.6 percent, broadening its base to include “services” and items now exempt. He would impose a 5 percent severance tax on natural gas drilling, increase the tax on cigarettes by $1 per pack, and tax cigars, snuff and chewing tobacco.
Senate Majority Leader Jake Corman, R-Centre County, immediately called Wolf’s budget “dead on arrival” — like many governors’ budgets. Essentially, governors issue wish lists, or spending blueprints.
It makes no sense to embark on the tax-shifting plans that Wolf proposed until fixing fundamental problems with state and school pension systems, Corman said. Those are cost drivers increasing school real estate taxes, which will continue to rise, he said.
By agreeing to tackle pension reform, Wolf would “open a lot of doors” on budget negotiations. Wolf’s borrowing plan for pension costs “is not reform,” Corman said.
House Speaker Mike Turzai, R-Marshall, has said new revenue discussions must start with privatizing the state liquor stores, which the House approved in a Turzai-sponsored bill last week.
Liquor privatization is “probably a non-starter” for Senate Democrats, Hughes said.
Wolf did offer items that appeal to Republicans, such as significant reductions in business taxes with a new method for companies reporting income from out-of state-operations.
“Property taxes are an issue for many members, not just in our caucus,” said Stephen Miskin, a spokesman for House Majority Leader David Reed, R-Indiana County. The problem is, Wolf isn’t advocating a “dollar-for-dollar” cut in property taxes, Miskin said.
“I don’t think reasonably it can be (that),” said House Minority Leader Frank Dermody, D-Oakmont. “It’s real. It’s serious money” for home-owners.
There are other problems with the fundamentals and execution of Wolf’s plan, some GOP staffers and observers said.
The way the plan is structured, it may run into potential conflict with the uniformity clause of the state Constitution, which requires treating all classes of taxpayers equally, said Stephen MacNett, former Senate general counsel. Wolf’s analysts don’t see a problem.
In some school districts, it could result in “real people paying the personal income tax and sales tax to fund commercial and industrial property tax relief,” said Drew Crompton, the Senate’s top GOP lawyer. Crompton sees it as more of a “political than a constructional problem.”
Brad Bumsted is Trib Total Media’s state Capitol reporter. Reach him at 717-787-1405 or firstname.lastname@example.org.