Ray's Round Up: Pennsylvania Has Spending Plan for 2016-17 Budget

After a whirlwind of activity in the past two weeks, members of the Pennsylvania General Assembly left town late on Wednesday, July 13, after passing legislation which completed work on the 2016-17 state budget.

Before getting into what that final piece of legislation was, it may help to give a brief overview of the how the state budget process evolved this year. First, it’s important to know that in Pennsylvania our fiscal year begins on July 1 each year and ends on June 30 of the following year.  When we talk about how state government programs are funded, this is the time frame when the spending on the programs takes place.

Given that time frame, the Governor and the General Assembly should agree on a state budget by June 30 so the operations of the state can continue as the new fiscal year begins on July 1. If you follow the deliberations of the General Assembly, you know Pennsylvania often has trouble meeting that deadline, with the 2015-16 budget being the worst example, as a full budget was not finalized until 9 months after the deadline.  There have been periods in Pennsylvania’s history when the lack of a budget would mean that all state government services would be suspended (and most state employees would be furloughed) but decisions by the Pennsylvania Supreme Court in the last decade have deemed that state services should continue despite the lack of a budget because Pennsylvania continues to collect revenues in the form of taxes whether a budget is approved or not.

On the other hand, without an agreed upon state budget, state payments to non-state government providers of services ceases; thus, the budget impasse of 2015-16 impacted local school districts and local providers of services such as Meals on Wheels and home health care.

Another thing that has changed in the past few years is how budget deliberations and votes take place in the General Assembly. In the past, legislation to determine how the state would spend funds and how the state would raise funds would move through the process together.  This year, however, the General Assembly passed a spending plan almost two weeks before they passed the plan on how to collect the funding to pay for the spending they authorized.  This led to a short period of great uncertainty in the State Capitol, as elected officials struggled to get a majority of both the Senate and the House to agree on how Pennsylvania would generate the revenue necessary to pay for the spending they had already authorized.

The spending plan passed by the General Assembly on June 30 authorized Pennsylvania to spend about $31.5 billion on all the services and programs funded by the state in 2016-17. It was projected that Pennsylvania would only generate about $30.3 billion in revenues from existing taxes and fees during the 2016-17 period, so lawmakers needed to determine how to collect an additional $1.2 billion.  No one was quite sure what would happen if they didn’t approve a plan.  There was speculation that all services and programs would receive a reduction in funding, but there was also discussion that the Governor could decide what services or programs would be cut.

In the end, after almost two weeks of negotiations, the House and Senate passed legislation that raised the necessary revenues to balance the budget. The Associated Press reported these revenue estimates:

• CIGARETTES: Increases the per-pack excise tax on cigarettes by $1 to $2.60 to generate $430 million.
• LOAN: Borrows $200 million from a surplus in a state medical malpractice insurance fund, to be paid by over a five-year period starting July 1, 2018.
• WINE AND LIQUOR: Projects a month-old law liberalizing the sale of wine and liquor will generate $149 million.
• TAX DELINQUENTS: Allows tax delinquents to pay back taxes without penalty to generate $100 million.
• CASINO GAMBLING EXPANSION: Assumes $100 million from gambling legislation that is on hold until the fall, primarily from licensing fees for legalizing internet gambling.
• PHILADELPHIA CASINO: Books $75 million in expected license fees from Philadelphia casino that was awarded a license in 2014.
• SALES TAX DISCOUNT: Lowers the amount of sales tax collections that retailers may keep to generate $55 million.
• TOBACCO: Imposes a 55-cents-per-ounce tax on roll-your-own tobacco and smokeless tobacco to generate about $50 million.
• DIGITAL DOWNLOADS: Eliminates an exemption from the state's 6 percent sales tax on the download of digital videos, books, games, music and applications to generate $47 million.
• BANKS: Raises rate of shares tax on bank and trust companies to 0.95 percent, from 0.89 percent, to generate $23 million.
• TABLE GAMES: Imposes a new 2 percent tax on casinos' gross revenue from table games to generate $17 million.
• INCOME TAX: Extends 3.07 percent state income tax to Pennsylvania Lottery winnings to generate $16 million.
• ELECTRONIC CIGARETTES: Imposes a 40 percent tax on the wholesale price of electronic cigarettes, including vapor producing devices and liquid cartridges, to generate $13 million.

There are concerns that some of these revenues are only one-time “fixes” and lawmakers will need to find different revenues or make significant spending cuts to balance the budget next year. But that’s a debate that will take place beginning in January2017. For now, the General Assembly has recessed until mid-September, when they will return to consider a number of important issues before the November election.

“Ray’s Round Up” features updates on current state and federal issues by Ray Landis, AARP PA’s Advocacy Manager.