Budget Proposal Takes Center Stage — and the Battle Begins, State Roundup

By PA Independent Staff

HARRISBURG – Gov. Tom Corbett delivered his budget address this week, pitching an overall increase in spending to go along with pension reforms and a hike in the state’s gasoline tax to pay for reconstruction of roads and bridges.

This Friday, we explore the various sides of Corbett’s third budget proposal — which will be tweaked, haggled over and perhaps even completely rewritten before the General Assembly passes a budget in June.

Corbett’s budget includes tax increase, tackles heavy issues

Corbett’s proposed budget would spend $28.4 billion during fiscal year 2013-14, a 2.4 percent increase.

As part of his plan to spend $5.4 billion over five years on highways, bridges and mass transit, the governor wants to boost levies on gas stations and drivers in the state by incrementally uncapping the Oil Franchise Tax.

The budget also tackles a $500-million increase in pension contributions, but does so by reducing the amount the state will contribute to the pension costs and increasing the debt of the state’s two public pension funds. Those funds already face more than $40 billion in debt.

By artificially cutting the state’s contribution to the pension systems, the budget proposal seeks to achieve $175 million in savings at the state level and $140 million in savings for school districts. Those savings also are predicated on reforms to current and future employees’ pensions.

Corbett proposed adding $90 million to basic education, part of an overall $350 million increase on the education line item that includes some of the costs of the pension increase.  That does not include an addition $1 billion for schools that would be made available if Corbett succeeds on another front – privatizing the state liquor stores.

Corbett also called for an incremental reduction in the state’s corporate net income tax, beginning in 2015 and continuing for 10 years.  By 2025, the proposal would lower Pennsylvania’s corporate income tax rate from 9.99 percent to 6.99 percent.

Transportation plan unveiled, lawmakers get final say

On the same day Corbett introduced his 2013-2014 budget proposal, he announced a plan to generate more than $5 billion in transportation funding over five years, mostly from a change in the way gas taxes are levied.

Under his plan, funds would come from lowering the flat tax paid by consumers while increasing the tax gas stations pay on fuel.  Corbett and other administration officials maintain this wouldn’t necessarily raise gas prices, as pump prices are determined by a variety of factors, including the price of crude and location.

The changes would generate $500 million in new revenues for transportation projects in the first year, rising to $1.8 billion annually by the fifth year when the cap on the tax is entirely removed.

“If we don’t do anything, we’re going to reduce our spending on roads and bridges,” said Transportation Secretary Barry Schoch. “We know we have an old system and it will simply exacerbate the problem.”

House Majority Leader Mike Turzai, R-Allegheny, said lawmakers on both sides of the aisle want to discuss solving the state’s transportation funding issues.

Turzai said he did not think “the governor’s proposal is necessarily the definitive proposal” or that it will get passed by the June 30 budget deadline.

But he promised to give the proposal a “very, very serious look,” he said.

Pension reform aims for savings in the short term

Proposed pension reforms in Pennsylvania save about $175 million next year, but could end up costing billions in the long run.

During his budget address on Tuesday, Corbett called on lawmakers to pass his multilevel pension reform proposal with this year’s state budget. The plan would move new employees to a 401(k)-style pension system, would reduce future benefits for current employees and would reduce the state’s payments into the state’s two pension systems for the foreseeable future.

The first two parts of his plan are intended to save costs in the long run by cutting a small part of the state’s unfunded liability, while the third part would free up about $175 million for the state in next year’s budget.

“Resolving our pension crisis will be the single most important thing we do for decades to come,” Corbett said in his address.

Under current law, the state’s pension contributions will climb from $1.1 billion this year to about $3 billion in fiscal year 2016-17. But those contributions are already less than recommended by actuaries, resulting in the state’s unfunded liability being projected to climb from $40 billion now to $65 billion by 2018, before declining.

With the proposed reforms, the unfunded liability will continue to grow, but will peak at about $62 billion in 2018 – and then only if changes to both new and current employees are enacted, according to Corbett administration projections.

State Treasurer Rob McCord blasted Corbett’s pension proposal as “kicking the can down the road” and “fantasy island finance.”

McCord, a Democrat who is widely believed to be preparing for a gubernatorial bid against Corbett in 2014, favors bringing the pension debt on the state’s balance sheet to make policymakers more aware of the $40 billion debt and using pension bonds to pay off some of the liability.

Tolls will continue to increase even as Corbett calls for Act 44 repeal

The governor’s budget proposal, outlined on Tuesday, would repeal of a 2007 state law that has driven the Pennsylvania Turnpike deep into debt and forced five consecutive years of toll increases.

The governor’s budget would sunset that law – Act 44 of 2007 – within 10 years. But an administration official says motorists using the turnpike can expect to continue seeing toll increases for the next decade, and probably longer, to retire the turnpike’s $8 billion in debt.  Lawmakers say they are supportive of the repeal and are looking for ways to lessen the impact on drivers.

Secretary of Transportation Barry Schoch said that tolls will continue to increase between 3 percent and 5 percent for the next 10 to 15 years, with smaller increases for years after that.

The increases will be necessary to continue capital projects on the highway and pay for debt service payments, state officials said.

“The increases will be less once the Act 44 payments end, a few years after it ends,” Schoch said. “There is a lag of a few years before you start seeing toll reductions because you have to pay for the debt we have already incurred.”

Under the provisions of Act 44, the turnpike was authorized to borrow more money for capital projects and increase tolls annually for 50 years to cover the costs.  In return, the turnpike was required to pay $450 million annually to the state.

Those payments are split, with $250 million funding other highway and bridge projects and $200 million funding mass transit, mostly in Philadelphia and Pittsburgh.

Welfare secretary to resign next week, return to Rhode Island one last time

Department of Public Welfare Secretary Gary Alexander will resign from his post, the administration announced Friday.

In a news release, Corbett said Alexander “has been a tremendous asset in prioritizing our funding and eliminating waste, fraud and abuse in our welfare programs.”

Alexander’s last day will be Feb. 15. During his tenure as secretary, Alexander has maintained a home in Rhode Island, where he was previously a state employee, and traveled back and forth to Harrisburg on a fairly regular basis.

PA Independent reported about the travel patterns in December.

Alexander said in a statement he was “blessed to have been surrounded by a host of remarkable employees at DPW,” and grateful to Corbett for the opportunity to serve the state.

“We’ve accomplished a great deal in Pennsylvania, and I have thoroughly enjoyed my tenure here, but now is the perfect time to pursue new opportunities and rejoin my young family in Rhode Island full-time,” Alexander said.

The administration has picked Bev Mackereth, deputy secretary for the Office of Children, Youth and Families, to serve as acting secretary.

Mackereth is a former state representative and has served in previous health and human service positions before, including executive director of York County Human Services. The Department of Public Welfare employs around 17,000 workers and has an annual budget of more than $26 billion in state and federal dollars. More than 2.2 million Pennsylvanians are supported by DPW services.

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