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By Chris Comisac
Bureau Chief
Capitolwire
HARRISBURG (July 13) – The General Assembly performed a bit of budgetary magic Wednesday, balancing a $31.63 billion spending plan approved two weeks ago in a matter of less than one day.
Of course it took every bit of those two weeks to get to that point, along with plenty of creative budgeting.
The Independent Fiscal Office delivered its official revenue estimate for 2016-17 on June 15, indicating there would be approximately $31.66 billion in revenue generated by existing state law, including the new liquor law changes.
The soon-to-be-enacted 2016-17 revenue plan assumes the revenue estimate is $31.56 billion, although that figure does not include the $149 million in revenue the Legislature assumes will be generated by the already enacted liquor law changes. With the $149 million added in, the revenue total, before $1.3 billion in estimated tax refunds are applied, is $31.71 billion.
With the estimated refunds applied, the hole to be filled – to balance $31.63 billion in spending – is $1.22 billion.
The financial statement issued by Gov. Tom Wolf’s office for the 2016-17 budget only shows $31.53 billion in spending since $95 million of spending for the Commonwealth Financing Authority – to pay the authority’s principal and interest obligations – was moved out of the General Fund and in into a restricted revenue account (by the 2016-17 Fiscal Code).
To balance $31.53 billion, the needed revenue figure is $1.12 billion.
A decent portion of that gap will be filled by recurring revenues, which were inserted into House Bill 1198 by a rare conference committee, before winning General Assembly approval on Wednesday.
According to documents provided by the House Republican Caucus, the tax code bill generates a net $752.3 million. The Wolf administration booked the final total at closer to $727 million.
About $10.5 million of the overall revenue generated by the revenue bill’s components is used for two tax credit programs. Several more tax credit programs will begin in 2017-18, but they do not affect the revenues of the 2016-17 fiscal year.
Leading the way for recurring revenues is a $1-per-pack tax increase on cigarettes, with an estimated revenue total of $431.1 million. A portion of that revenue, $5 million, is used to increase the existing transfer to the state’s Agricultural Conservation Easement Program.
Other tobacco- and smoking-related taxes would add $62.6 million to that revenue: smokeless tobacco ($46.2 million); e-cigarettes ($13.3 million); and roll-your-own cigarettes ($3.1 million). An additional $2 million in sales tax revenue is also expected from higher prices for other tobacco product. Cigars will remain untaxed in Pennsylvania.
The cigarette tax would become effective on Aug. 1. The 55 cent-per-ounce tax on smokeless tobacco and the 40-percent tax on the wholesale price of e-cigarette taxes will be implemented starting on Oct. 1. The roll-your-own tax (also 55 cents-per-ounce) is to be effective on Dec. 1.
On top of the nearly $500 million in revenue generated by the tobacco- and smoking-related taxes, a scaled back gaming expansion effort would produce $100 million in revenue. Gambling in the state would be expanded to include casino-controlled internet gambling, or iGaming, as well as allowing slot machines at off-track-betting sites. A 2-percent increase of the existing tax on table games is anticipated to generate another $16.8 million.
While there are no broad-based tax rate increases, the items subject to two of those taxes are changed.
The Sales and Use Tax will be applied digital downloads, as of Aug. 1, generating an estimated $46.9 million in revenue. Sales tax exemptions will be given to corrugated boxes (costing the state $800,000, effective July 1) and convention centers (costing $100,000, effective Sept. 1). Additionally, with regard to the sales tax, the discount vendors get for timely remittance of the sales tax to the state is capped at $300, as of Aug. 1 – that is expected to generate $55.5 million in recurring revenue.
The impact of the personal income tax will also be expanded, with it to be imposed on lottery winnings, retroactive to Jan. 1, 2016. An extra $16 million in recurring revenue is estimated from the change.
The state’s Bank Shares Tax will be increased, from the current 0.89 percent to 0.95 percent, effective Jan. 1, 2017. Along with some clarifications and cleanup to achieve the revenue neutrality intended with the enactment of Act 52 of 2013, the Bank Shares Tax change is expected to generate an additional $23.5 million.
An additional $100 million in revenue, although not recurring, would come from a new offering of tax amnesty, which will allow people who owe back taxes to pay without penalty. Some questions have been raised about the ability of the amnesty to generate the estimated amount of funds, with suggestions it could be closer to $80 million, since insufficient time has passed since the last amnesty in 2010 to build up enough back taxes that could be collected.
The plan also assumes the state will receive a one-time $74.75 million in license fees for a new slots casino in Philadelphia that is expected to also offer table games. A $50 million fee (for slots alone) has been assumed for at least the two state budgets prior to this one, and has yet to be realized because the new casino has been in legal limbo. In March, the state Supreme Court ordered the Pennsylvania Gaming Control Board to take a closer look at the license that was awarded to the Live! Hotel & Casino Philadelphia and then challenged in court by other parties interested in the license.
But revenues aren’t the only component of the budget-balancing act performed Wednesday – fund transfers are also a significant factor.
The largest single transfer is a $200 million “loan,” included with a multitude of provisions within the 2016-17 Fiscal Code, to the General Fund from the Pennsylvania Professional Liability Joint Underwriting Association. The General Assembly gives itself five years to pay the $200 million back to the PPLJUA.
The PPLJUA is a non-profit association created by the state’s MCARE Act to “offer medical professional liability insurance to health care providers and professional corporations, professional associations and partnerships which are entirely owned by health care providers who cannot conveniently obtain medical professional liability insurance through ordinary methods at rates not in excess of those applicable to similarly situated health care providers, professional corporations, professional associations or partnerships.”
As noted in a recent Capitolwire story regarding another potential “loan,” the most recent “loan” from a fund – a $100 million loan to the General Fund in the 2003-04 Fiscal Year from the state’s Underground Storage Tank Indemnification Fund – has yet to be paid off ($67.5 million still owed), even though it’s original “loan” term (which has now been extended until 2029) was ten years.
Another $65.5 million is transferred from the following funds: $5 million from the Alternative Fuels Incentive Fund; $2 million from the Local Law Enforcement Block Grants; $9 million from the Recycling Fund; $9 million from the Volunteer Companies Loan Fund; $12 million from the Building Pennsylvania program account; and $28.5 million from the Tobacco Settlement Fund.
And $20 million in one-time funding is expected from the recently announced settlement of consumer claims against Volkswagen AG’s misrepresentations regarding the pollution compliance of its diesel engines.
The original House budget proposal included $100 million in lapsed funds from prior fiscal years, but the plan that will ultimately be implemented for 2016-17 lapses $57.4 million in prior year funds. Additionally, as part of the overall spend total by the already-enacted 2016-17 General Appropriations bill, there was a one-month delay to the Social Security payment to public school employees.
All totaled, that’s more than a half-a-billion in one-time funding that will have to be accounted for when the governor and legislators start developing a budget for 2017-18.
During the 2015-16 budget impasse, Gov. Tom Wolf and legislative Democrats railed against efforts to balance the budget with one-time funds, calling them “smoke and mirrors” and “gimmicks.”
When asked about one-timers for the 2016-17 budget, they acknowledged the problems with their use, but indicated one-timers were ultimately necessary to get a budget finished.
“This package is an important step forward and includes sustainable, recurring revenue that makes significant progress toward reducing our structural deficit,” said Wolf in an announcement indicating he would sign the budget legislation.
In response to an additional question about the one-time revenues, Wolf spokesman Jeff Sheridan emailed Capitolwire: “This revenue package is an important step forward and includes nearly $1 billion in recurring revenue, and it also includes one-time fixes that are not sustainable and do not completely fix our long-term problems. As the governor said, we still have much work to do in next year’s budget, and he looks forward to continuing to work with legislative leaders to make progress on important issues facing Pennsylvania.”
“One year at a time,” said House Minority Leader Frank Dermody, D-Allegheny, Wednesday afternoon following the approval of the conference committee report containing the revenue package.
“We needed to get a budget passed that was, pretty much, on time – this is a little late but it’s better and it does have recurring revenue to support next year,” added Dermody.
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The 40% tax on the vaping industry is absurd. I already know 5 shops in my area that are planning on going out of business because they cannot afford to remain with the inventory they carry. So, you were planning on 13 million gained from this tax, but what you’re really doing is protecting big tobacco, and trying to eliminate small business. Do some further research and find out how PA has lost over 150 million dollars in subsidiary revenue from big tobacco because they got greedy in 2012. This is NOT the answer to this problem.
Cut down on prisons and pensions!