With Pennsylvania’s budget stalemate reaching its 100th day on Friday, Gov. Tom Wolf and Pennsylvania lawmakers remained far apart.
Essentially, it’s day zero.
Predictably, first-year governor Wolf, a Democrat, and the Republican-controlled legislature put different spins on Wednesday’s rejection by the House of Representatives of Wolf’s latest tax package. The governor had sought a half a point increase in the personal income tax and a tax on natural gas drilling to cover a shortfall that he projected could reach $3.5 billion next year.
Republicans called the 127-73 vote, with nine Democrats crossing the aisle, a renouncement of Wolf’s taxation agenda. Wolf said both parties at least agree that the state’s budget deficit is huge.
“The deficit is real,” Wolf told reporters late Tuesday at the state capitol in Harrisburg.
That could prompt further rating agency downgrades, he added.
“This is not Governor Wolf talking. This is objective, outside credit rating agencies talking. We’ve had that,” the governor said.
All three major bond rating agencies downgraded Pennsylvania in 2014, citing chronic budget imbalance and a state unfunded pension liability estimated at $53 billion. Moody’s Investors Service rates Pennsylvania’s general obligation bonds Aa3, while Fitch Ratings and Standard & Poor’s rate them AA-minus.
“A sensible way to approach moving forward in budgets would be to tie any increases in the budget expenses and revenues to the current [consumer price index] or five-year rolling average of the inflation rate,” said David Fiorenza, a professor at Villanova School of Business and former chief financial officer of Radnor Township, Pa. “True budget reform is operating as close to zero based budgeting as possible and not increasing taxes in a regressive fashion affecting the majority of taxpayers.”
Only Pennsylvania and Illinois have unsigned budgets.
Standard & Poor’s referenced the Illinois impasse Wednesday as a factor leading it to downgrade Chicago’s motor fuel-tax backed bonds six notches to BBB-plus from AA-plus.
Rep. Greg Rothman, R-Cumberland, suggested Pennsylvania lawmakers try again to override the $30 billion budget that Wolf vetoed in June. “It happened in New Hampshire. I think we can do it here,” he said.
In mid-September, New Hampshire Gov. Maggie Hassan, a Democrat, agreed to an $11.4 billion biennial budget that Republican legislators originally passed but Hassan had vetoed.
According to Fiorenza, Wolf chose not to use line-item vetoes in June.
“With a line item veto and passing the budget, he still had the opportunity to push most of his tax and expense agenda through this year with the remainder of his budget increases in the three remaining years during his tenure,” he said.
Wolf had proposed raising the personal income tax from 3.07% to 3.57%. He also called for a 3.5% natural gas extraction tax plus 4.7 cents per thousand cubic feet, on top of the existing impact fee of about 1.9%. Wolf’s package would also have cut property taxes for senior citizens.
“I’m not taking anything off the table,” he told reporters.
School districts and social service agencies are already feeling the pinch.
The Keystone Alliance for Public Charter Schools said lack of state funding is forcing many school districts to reducing or suspend tuition payments to brick-and-mortar charter schools statewide.
“These charter schools are drawing down reserve funds or accessing lines of credit,” said Wells Fargo Securities LLC associate Roy Eappen.
