Responsible Drilling Alliance

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28
Oct

PA Budget Hocus Pocus and the DOA Severance Tax

by Ralph Kisberg, RDA founding member and consultant

Keeping up with Pennsylvania’s budget issues can be a full-time job. Luckily, there are people that do it. One source RDA recommends is the PA Budget and Policy Center (www.pennbpc.org), often referred as “liberal leaning’ or “left wing.” We have found those adjectives usually mean a fair-minded source for future-oriented, well-researched, source-documented information that accurately separates facts from “fake” fiscal conservatism.  

According to the PBPC’s latest blog  

If the governor signs the tax and fiscal code bills passed this week, or allows them to become law, a funding plan for the Pennsylvania Budget for 2017-2018 that technically allows for a balanced budget will be complete. But the work of the General Assembly is not finished because this funding plan not only fails to address the long-term budget problems faced by the state, it deepens those problems. The result will be that the fiscal year beginning in July 2018 will be in deficit and that, unless the state changes direction, those deficits will no doubt increase in subsequent years.
 

For a different perspective on the issue, State Representative and former Lycoming County Commissioner Jeff Wheeland’s Weekly Roundup (you can sign up at repwheeland.com) :  

This week, the House and Senate sent to the governor’s desk the remaining pieces of the 2017-18 budget package. That includes legislation to protect taxpayers from a broad-based income, sales or utility tax increase this fiscal year, while also generating enough revenue to close out the 2016-17 fiscal year and fully fund the 2017-18 budget year… Part of the funding package is based on securitizing the state’s Tobacco Settlement Fund and includes transferring $300 million in unspent dollars from special funds…. Ultimately, my Republican colleagues and I fought successfully to pass a spending plan that was much less than what the governor proposed while still investing in the core functions of government without further burdening taxpayers.

According to the PBPC, “securitizing” the tobacco settlement means issuing bonds; in other words, borrowing money we’ll need to pay back, backed by money due the Commonwealth useable for other purposes. In effect, pre-inserting debt into future budgets.  

This sounds a lot like the Wheeland plan for preventing a tax increase in Lycoming County when he was our lead County Commissioner. Borrow and spend and claim fiscal conservatism. At least this time there is money due to us to insure we can pay the tobacco settlement portion of the budget hocus pocus solution.  

What does the PABPC think of such a deal?  

…The rest of the budget is funded with $500 million in transfers from special funds, including the fund that supports medical malpractice insurance, one-time revenues from selling gaming licenses, and a $1.5 billion bond issue backed by tobacco fund revenues that was also included in the Senate plan.

          

As we have said before, given the depth of the problem created by the revenue downturn and other problems last year, as well as the unwillingness of the General Assembly to raise sufficient tax revenues last year or this year, selling bonds to be repaid by tobacco settlement and / or PLCB revenues is a bad idea whose time has apparently come.  

To our mind, borrowing to make up for the mistakes of previous years can only be justified if it is part of a long-term plan that does not repeat those mistakes. But not only do one-shot revenues and borrowing not solve the state’s long-term budget problems, they make those problems worse.  

The budget for the fiscal year beginning on July 1, 2018 is already unbalanced. Next year, the state will have to come up with additional revenues to: (1) pay for increased costs, especially for Medicaid, salaries, and other goods; (2) replace the roughly $600 million in funds provided by one-time revenues or raids on special funds this year; and (3) secure the $200 million or so to replace the money the tobacco settlement or Liquor Control Board provides to the state (or $400 million if the state floats bonds on both revenue sources).

   

We report on the reporters, you decide. As for all the talk of a severance tax to help close the budget deficit PCBPC relates:  

A genuine bi-partisan effort on the part of the governor, a majority of the Pennsylvania Senate, and what appears to be a majority of the Pennsylvania House sought to enact a shale tax, that is a severance tax on natural gas drilling. That tax would have provided the recurring revenues needed to gradually reduce our long-term structural deficit. But at the behest of the extremists in the Republican caucus, Speaker of the House Mike Turzai and Majority Leader Dave Reed blocked this effort.

 

The fight for a shale tax continues. We need to keep reminding legislators of both parties that the budget is balanced with the equivalent of string and scotch tape and that the string will break and scotch tape fall off at the start of next year. And we need to hold Majority Leader Dave Reed to his promise to allow a vote on a shale tax.

       

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