Budget-Making in a Broke City: State Roundup

By PA Independent

HARRISBURG — In a capital city teetering on the brink of bankruptcy, and the first city in the nation to be charged by the federal Securities and Exchange Commission with misleading investors, the Pennsylvania state government is beginning the process of putting together a budget.

Pension costs and transportation spending will loom large in the new budget, which will get its first legislative vetting next week.

Corbett: Get ready to write checks to pay for pension debt

Gov. Tom Corbett has talked about the looming danger that Pennsylvania’s $47 billion public pension debt poses to the state budget.

This week, he made it clear how that would affect the household budget as well.

At the current level, the unfunded pension liability would cost each household in Pennsylvania more than $9,000, the governor said.  If there are no reforms and the debt continues to grow to an expected $65 million by 2018, the average cost will be $13,000 per family.

“That’s the cost of doing nothing,” Corbett said. “Are you ready to write your checks?”

Corbett’s proposed pension reforms would create a new, cheaper pension system for new state and school district employees.  Current employees would retain their already-earned benefits, but would see future benefits reduced, and retirees would not see any changes.

The legislation was introduced this week in the state House and state Senate, but so far there is little appetite to pass the bills in either chamber.

SEC announces charges against city of Harrisburg

The city of Harrisburg made history as the first municipality charged by the SEC with securities fraud, accused of misleading investors with inaccurate financial statements made to the public.

BAD CITY: Harrisburg was told to stop lying to the public about its finances, and promised not to do it again.

The SEC, which announced the charges Monday, said the misinformation meant investors risked dealing in securities based on incomplete or outdated knowledge. The SEC found financial reports from 2009 through 2011 were either missing or inaccurate.

“These public officials’ statements were the principal source of significant, current information about the issuer of the security and thus could reasonably be expected to influence investors and the secondary market,” the SEC said in a report detailing the charges.

The city has reached a settlement with the federal agency and will implement new policies to prevent such inaccurate information from being made public in the future, according to the court order.

The SEC didn’t levy any fines against the city, or name individuals involved in the case.

Still, some are calling for further investigation into Harrisburg’s financial situation, weighing whether fraud in the city’s financial dealings merit criminal charges. At a news conference earlier this week, Sen. Rob Teplitz, D-Dauphin, who represents Harrisburg, said the case is under consideration by Dauphin County District Attorney Ed Marsico.

Senate Transportation Committee votes out $2.5B plan

The Senate Transportation Committee, headed by Sen. John Rafferty, R-Montgomery, approved a plan to spend $2.5 billion in new transportation funding over five years with a 13-1 vote this week.

PAYING MORE: It’s going to take $2.5 billion to adequately fund Pennsylvania’s transportation infrastructure, according to the Senate Transportation Committee. One guess where that money is coming from.

The legislation would generate $1.6 billion of its spending plan by uncapping the oil franchise tax applied to the wholesale price of gasoline. Other motor vehicle fees would increase, including a $100 surcharge for moving traffic violations. License fees would increase from $29.50 every four years to $50.50 every six years. Registration fees would rise from $36 annually to $102 every two years.

Rafferty’s proposal would spend about $1.9 billion on highway and bridge repairs. About $510 million would be budgeted for the state’s 36 public transit systems, and the remainder would go to funding for railroads, ports, airports and bicycle and pedestrian programs.

Senate Transportation Minority Chairman John Wozniak, D-Cambria, said the Senate isn’t likely to pass a bill without an agreement from the House of Representatives, where there is more hesitation to raise gas prices and fees.

But, Wozniak said, the state is long overdue for collecting more money to fund its roads and bridges. The state last increased the gas tax in 1997.

New district maps finally get Supreme Court “OK”

Pennsylvania will have new legislative districts for the 2014 election cycle, after the state Supreme Court unanimously approved redrawn House and Senate district maps this week.

The decision, released Wednesday, caps off a 17-month saga that began after the Supreme Court rejected a pair of legislatively drawn maps in January 2012 after a challenge brought by a private citizen who argued the districts unnecessary fractured too many counties and municipalities, a violation of the state constitution.

The court agreed, and ordered the legislative leaders who drew the maps to go back to the drawing board.  Since revised maps could not be completed before then 2012 election, they were conducted on the lines drawn in 2001.

But the commission was given a second shot at drawing constitutional maps and produced what the court said was a “better,” but “not perfect,” plan, according to the decision penned by Chief Justice Ron Castille.

The new maps are likely to lock-in Republican majorities in the state House for the rest of the decade, and will shore up the GOP in the state Senate, where they hold a narrower 27-23 majority.

Corporate tax overhaul heads to state Senate

With bipartisan support, the state House passed a bill this week to begin a slow process of cutting Pennsylvania’s corporate income tax rate.

The proposal would lower the state rate to 6.99 percent by 2025 from the current level of 9.99 percent in a series of incremental steps that would begin in 2015. It also promises to close the so-called “Delaware loophole,” by which companies incorporate in Delaware to avoid paying corporate taxes in other state, by giving the state Department of Revenue more power to go after companies that transfer wealth out of Pennsylvania for tax purposes.

“It’s an opportunity to bring about changes to two components of our business tax structure that Republicans and Democrats have talked about for years with no results,” said state Rep. Dave Reed, R-Indiana, who sponsored the bill.

Democrats who spoke against the bill Monday on the House floor said it would cost the state money in the long-term by reducing the tax rate while not placing tough enough requirements on businesses and expanding tax credits for some corporations.

House will kick-off budget scramble next week

The state budget scramble will begin early next week as the state House gets ready to tee-up its own budget proposal with revenue forecasts that are cloudy at best.

Republican lawmakers met with Gov. Tom Corbett this week to discuss the budget plan, and House Majority Leader Mike Turzai, R-Allegheny, said a House plan will be made  public next week.

“We established timetables and process,” Turzai said. “We intend to move in due diligence to make sure we have the budget done in a timely fashion, and a responsible fashion.”

In February, Corbett proposed a $28.4 billion spending plan for fiscal 2013-14.

But that was dependent on the state collecting about $232 million in excess revenue during the current fiscal year, which ends on June 30.

Last week, both the Independent Fiscal Office and the Department of Revenue acknowledged the state was likely to fall short of that mark.

The state budget deadline is June 30.