Pennsylvania legislators moving closer to accord on revenue package to fund budget - Debtwire

Pennsylvania legislators moving closer to accord on revenue package to fund budget

02 October 2017 - 12:00 am

Pennsylvania lawmakers are making headway toward a revenue package to fund the state’s budget, and House Republican spokesperson Stephen Miskin said some money transfers from special funds will be part of it.


Legislators passed a USD 32bn FY18 budget on 30 June without a revenue package to fund it, as reported. On 27 July, the Republican-controlled Senate approved and sent to the House of Representatives a revenue package that included USD 500m in new taxes, including a tax on natural gas drilling as well as electric and telephone services, along with USD 1.3bn of borrowing against state tobacco settlement revenues, as reported.


House Republicans put forth their own revenue plan – rejected by the Senate on 20 September as reported — which included no tax increases, but called for USD 630m of special fund transfers from funds with excess or dormant monies to help balance the budget.


“There will be transfers,” said Miskin, who said negotiations on the revenue package continue, but that the dollar amount of fund transfers would probably be less than USD 630m passed by the house. As for a natural gas severance tax, Miskin said “it’s still a priority for some, but its fate is still uncertain.”


An “in-depth” examination of the state budget revealed existing taxpayer dollars sitting idle in special government accounts, according to a 7 September House Republican Caucus press release.


“Accessing these accounts has been done before, but never on this scale,” the release said. “Some of the accounts are dormant, and have not seen any activity in recent years. Others have extremely high fund balances.”

On the Senate side, Jennifer Kocher, spokesperson for Majority Leader Jake Corman (R) declined to discuss details regarding the talks.


“I can tell you that we continue to meet and continue to make progress toward a final agreement,” Kocher said.


Raiding special funds to balance the general fund is a bad idea, according to Marc Stier, director of the left-leaning Pennsylvania Budget and Policy Center. The idea appears to emanate from supporters of Speaker of the House Mike Turzai (R), who is determined to avoid raising taxes at all costs, Stier said.


“Normally, politicians wouldn’t put forward a plan to raid … special funds that hasn’t been thoroughly vetted, that isn’t documented, that most people with deep knowledge of the budget think is total nonsense,” he said.


While the Senate “overwhelmingly rejected” the house revenue plan and Governor Tom Wolf (D) also opposes it, it’s possible that legislators may reach some form of compromise involving a mix of some recurring tax revenues and some taking from excess balances in a few special funds, Stier said. Some excess balances may exist, though House Republicans “haven’t demonstrated that at all to anyone’s satisfaction,” Stier said.


“So it’s conceivable that such a compromise can come about, but there has to be some real recurring revenues to make that happen,” he said.


House Republicans “created a big furor” with the plan to take money from the special fund accounts, G. Terry Madonna, professor of public affairs and director of the Center for Politics and Public Affairs at Franklin & Marshall College. While an argument can be made that some state government programs and their reserved accounts ought to be evaluated to see how money is spent, House Republicans arrived at the plan in a matter of weeks, he said.


“And of course the people who are in these departments and programs screamed loudly that they were wrong,” Madonna said. “It wasn’t done in way that I would say is bipartisan, not that you can get bipartisanship anyway anymore.”


It also appears that gambling expansion will be part of the revenue package, Madonna said. Like the Senate, the House has also eyed tobacco settlement revenue, though neither Stier nor Madonna are big fans of using it to balance the budget.


Still, with Pennsylvania facing a roughly USD 2.2bn budget gap, it’s an option the state can’t ignore, Stier said.


“It’s a terrible idea whose time has come,” he said.


A USD 93.3m tranche of Pennsylvania second series of 2016 general obligation bonds second series of 2016 traded on 29 September at 97.356 to 96.344 to yield 3.186% to 3.26%, according to Electronic Municipal Market Access. S&P Global Ratings downgraded Pennsylvania GOs to A+ on 20 September. Moody’s Investors Service rates the bonds Aa3.