Highlights of Governor Wolf’s Proposed 2015-2016 Budget

Budget Numbers

  • 2015-2016 budget proposal: $29.884 billion.
  • Most of the tax revenue to come from the Personal Income Tax (40.8%) and the Sales and Use Tax (31.1%).
  • The largest proposed expenditures would be for Human Services ($11.9 billion), Education ($10.1 billion), Corrections ($2.3 billion), and Treasury ($1.2 billion).
  • Federal funds that contribute to the total operating budget of the state would be $27.9 billion.

The following have been proposed as part of Governor Wolf’s 2015-2016 budget plan.

Government Savings and Efficiency

  • Establishes GO TIME (Governor’s Office of Transformation, Innovation, Management, and Efficiency)–an initiative designed to save taxpayers more than $150 million in the next year.
  • Merges the Department of Corrections with the Board of Probation and Parole to eliminate duplicative administrative oversight and provide better outcomes after offenders return to the community.
  • Re-integrates Medicaid into a single delivery system with a goal of realizing $500 million in additional state savings next year.
  • Allows Pennsylvania to enter into Pay for Success projects (also known as Social Impact Bonds) in five areas: 1) early childhood care and education; 2) education, workforce preparedness, and employment; 3) public safety; 4) health and human services; and 5) long-term living and home-and community-based services.

Liquor Store Modernization

  • Modernizes the liquor delivery system to make it easier and more convenient for customers by including Sunday hours, identifying the most convenient locations for customers, and establishing competitive pricing.

Pension Reform

  • Provides for pension investment reforms: reducing management fees and over reliance on high-risk investment strategies.
  • Eliminates “double dip” payments to charter schools in the Public School Code.
  • Guarantees that all actuarially required employer (meaning the government) pension obligations are paid in full.
  • Builds on the pension changes of 2010 (Act 120 of 2010).
  • Establishes a restricted account to ensure that all future employer obligations are paid in full.
  • Refinances a portion of the unfunded liability of the Pennsylvania State Employees’ Retirement System (PSERS) through the issuance of a $3 billion bond (which would be paid for by increased profits from the state liquor store system beginning in FY 2017-2018).
  • Realizes new revenues through the modernization of the current state-run wine and spirits system that would be allocated to school districts to reduce their pension debt.

Tax Changes

  • Provides for the complete elimination of the Capital Stock and Franchise Tax, effective January 1, 2016.
  • Provides for a reduction of the Corporate Net Income Tax from 9.99% to 5.99% in FY 2015-2016; within two years, the rate would drop to 4.99%.
  • Requires combined reporting for corporate taxpayers; companies would file a single return for all subsidiaries at the state level.
  • Decreases the cap on net operating losses from $5 million or 30% of income to $3 million or 12.5% of income.
  • Provides for $3.8 billion of property tax relief effective in the 2016-2017 school year– paid for by an increase in the Personal Income Tax to 3.7%, an increase in the Sales and Use Tax by 0.6 percentage points (to 6.6% statewide), and the elimination of certain exemptions under the Sales and Use Tax (commonly referred to as broadening the base of this tax); this property tax relief incorporates $600 million in revenue from gaming that is already dedicated to property tax reduction.
  • Provides for a severance tax on natural gas extraction to help finance new debt for publicly financed economic development initiatives and for the Pennsylvania Education Reinvestment Act, which would be established to finance the education spending provided for in the governor’s budget plan.
  • Institutes a 1.25% Bank Shares Tax, retroactive to FY 2013-2014.
  • Increases the Cigarette Tax by $1.00 per pack effective October 1, 2015.
  • Imposes a tax on all other tobacco products at 40% of the wholesale value of these products (effective October 1, 2015).

Public Financing for Economic Development Programs and Projects (includes transportation and water and sewer infrastructure)

  • Provides $5 million for a new initiative that combines the Industrial Resource Centers with technological advances of higher education.
  • Provides a $5 million tax credit to manufacturing companies (this tax credit would be funded through the elimination of “under-performing” tax credits).
  • Provides $100 million to the Pennsylvania Industrial Development Authority.
  • Provides $250 million to Business in Our Sites for site development, business expansions, and business relocations.
  • Provides a $1 million increase for World Trade PA.
  • Provides a $2 million increase for Marketing to Attract Tourists.
  • Includes a $1 million increase in Marketing to Attract Business.
  • Includes a $25 million increase for PA First—to facilitate job creation through Opportunity Grants, Infrastructure Development, and Customized Job Training programs.
  • Provides a $15 million increase in Keystone Communities for Main Street, Elm Street, and Core Communities Development projects.
  • Provides an additional $11 million for the Infrastructure and Facilities Improvement program.
  • Includes $775,000 to preserve Pennsylvania’s military communities (Base Realignment and Closure).
  • Provides a $4 million increase to Public Television Technology.
  • Includes $15 million for a Mixed Use Development Program through the Pennsylvania Housing Finance Agency.
  • Supplements revenue generated by Act 89 of 2013 (transportation funding) with $145 million in bonds scheduled to be issued in FY 2014-2015 under Act 89 of 2013.
  • Leverages more than $500 million through the issuance of PennVEST revenue bonds to address deteriorating municipal water and sewer systems.

Public Financing for Energy Projects

  • $30 million for Combined Heat and Power (Cogeneration).
  • $20 million for Wind Power.
  • $20 million for Green Agriculture.
  • $30 million for the Pennsylvania Energy Development Authority.
  • $25 million for “Last Mile” Natural Gas Distribution Line Development.
  • $50 million for PA Sunshine (solar investments).
  • $50 million for Energy Efficiency.
  • $100 million for Technology Investment.

Basic, Special, and Early Childhood Education

  • Provides for a $400 million increase in the Basic Education Subsidy.
  • Includes a $100 million increase in the Special Education Subsidy.
  • Includes a $120 million increase in early childhood education for additional enrollment in Pre-K Counts and the Head Start Supplemental Assistance Program.
  • Includes a new Basic Education Formula that contains four goals: 1) adequacy, 2) equity, 3) predictability, and 4) accountability.
  • Includes accountability measures that address academic and fiscal performance in schools.

Charter Schools

  • Sets the regular education tuition rate for cyber charter schools at $5,950.
  • Applies the formula recommended by the Special Education Funding Commission to cyber charter schools.
  • Makes permanent in law the policy of stopping charter and cyber charter schools from being paid twice for the same employee pension costs.
  • Includes a requirement for an annual reconciliation whereby charter and cyber charter schools would refund money to their sending school districts if the charter school’s audited expenditures were less than its tuition revenue.

Higher Education and Workforce Development

  • Provides $15 million to support and modernize career and technical education.
  • Provides $5 million for Career and Technical Education Equipment grants.
  • Provides $9 million from Pennsylvania Higher Education Assistance Agency (PHEAA) proceeds to re-establish the state’s Dual Enrollment Grant Program.
  • Provides $8 million for career counselors for middle and high school students.
  • Provides a $15 million increase to community colleges.
  • Provides a $45.3 million increase to the Pennsylvania State System of Higher Education.
  • Provides an $80.9 million increase to State-Related Universities (i.e., Penn State University, Temple University, the University of Pittsburgh, and Lincoln University).
  • Calls on community colleges and the universities of the State System of Higher Education to freeze tuition during the next academic year.
  • Recommends $7.5 million from PHEAA proceeds for STEM—Science, Technology, Engineering, and Math.
  • Provides a $10 million increase to offer additional scholarships under the Ready to Succeed program.
  • Provides a $5 million increase for grants to independent colleges and universities (known as Institutional Assistance Grants).
  • Provides $8.5 million from PHEAA proceeds to expand the state’s loan forgiveness program for primary care physicians in medically underserved areas.
  • Provides a $10 million increase for Industry Partnerships.
  • Provides $8 million in funding for the Workforce and Economic Development Network of Pennsylvania (WEDnetPA).
  • Provides a $1.2 million increase for the Pennsylvania College of Technology and an $863,000 increase for the Thaddeus Stevens College of Technology.
  • Provides an increase of $466,000 for scholarships to graduates of Lincoln and Cheyney Universities who pursue graduate and professional degrees at state-related universities.
  • Provides a $475,000 increase for grants to offset tuition and other expenses for gifted students who attend Cheyney University.
  • Provides an increase of $4.6 million for Adult and Family Literacy programs.
  • Provides a $5 million increase for Vocational Rehabilitation.

Health Care

  • Expands Medicaid into a single consolidated system.
  • Expands coverage of the Children’s Health Insurance Program (CHIP) to an additional 15,881 children.

Drug and Alcohol Treatment

  • Provides a $2.5 million increase to Behavioral Health Services.
  • Provides a $5 million increase to the Department of Drug and Alcohol Programs to address heroin use and opioid addiction throughout the state.

Public Safety

  • Funds four classes of Pennsylvania State Police Troopers (or 350 new cadets).

Care for Vulnerable Citizens

  • Expands home-and community-based long-term care by providing an additional $31 million to the Department of Human Services (previously called the Department of Public Welfare) and $7.3 million to the Department of Aging to allow more individuals to obtain care in their homes.
  • Provides for the implementation of managed long-term care within three years.
  • Implements an online home care registry for workers to find jobs in the field and for consumers to find competent care.
  • Provides $45.9 million to reduce waiting lists for individuals with physical and intellectual disabilities (and expands services for these individuals).
  • Provides an additional $19.3 million for home-and community-based care for individuals with intellectual disabilities and autism (and includes $12.8 million to fully annualize the 2014-2015 program expansion).

Labor and Employment

  • Provides for an increase in Pennsylvania’s minimum wage from $7.25 to $10.10 and ties it to inflation.

Note: The information contained in this document is from public materials made available by the Pennsylvania Office of the Budget.   This document serves as a condensed summary of the provisions of Governor Wolf’s proposed budgetIt is not an official source on the Governor’s proposed 2015-2016 budget.

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If you have questions please contact Michelle Vezzani at MVezzani@cohenlaw.com or the public affairs professional with whom you work.

Will we finally have State and Municipal Pension Reform in 2015?

One of the unfinished items from the Tom Corbett era as Governor of Pennsylvania was an attempt to bring fiscal sanity to the underfunded state employees and teachers’ pension funds.

Because of a variety of reasons—some out of Governor Corbett’s control no action was taken, leaving this financial mess for incoming Governor Tom Wolf to deal with.

And mess it is. Both funds are severely underfunded, because of the 2008 great recession and because, in the teachers’ pension fund, the Commonwealth of Pennsylvania decided that the market was going so well that it gave itself and local school boards a pass in putting in their shares in the aforementioned fund.

Now we are billions in unfunded liabilities.

This is without counting local municipal pension fund problems. Pennsylvania suffers from a multiplicity of funds—almost 25 percent of local municipal pension funds are located in our fair state. Unfortunately a vast majority of these funds are deep in the red.

The City of York has announced that they will no longer have a police force or a paid fire department because the yearly payment it has to put into its pensions make these public safety employees a luxury it can no longer afford.

Speaker Elect Mike Turzai did try to deal with state pension reform last year, coming up a few votes short. All indications are that he wants to fix this problem once and for all in the coming New Year.

The State Senate did pass a bi-partisan municipal pension reform bill 5 years ago only to see it die in the then Democratic controlled House.

With a new Governor, with a fiscal pension mess and a revenue shortfall perhaps the impetus for a solution might be at hand.

To paraphrase an old saying, “Never let a good crisis go to waste.”

by Nello Giorgetti

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If you have questions please contact Michelle Vezzani at MVezzani@cohenlaw.com or the public affairs professional with whom you work.

Governor Corbett approves budget for Pennsylvania’s 2014-2015 fiscal year

On July 10, 2014, Governor Corbett approved the budget for Pennsylvania’s 2014-2015 fiscal year after announcing that he had decided to line item veto certain funding for the state legislature. The budget provides for $29.1 billion in state spending for this new fiscal year. Budget highlights include:

  • No increases in broad-based state taxes (e.g., Personal Income Tax, Sales and Use Tax).
  • No severance tax on the extraction and production of natural gas in the Marcellus Shale.
  • The continuation of economic development tax credits, including the Film Production Tax Credit.
  • The continued phase out of the Capital Stock and Franchise Tax.
  • $10.5 billion for K-12 education.
  • A $20 million increase in special education.
  • A $10 million increase for PlanCon, a process whereby a school district seeks reimbursement from state government for a major construction project undertaken by the school district.
  • $327.69 million in funding for early childhood education, including a $10 million increase for Pre-K Counts.
  • A $3.5 million increase in funding for community colleges.
  • $5 million for the newly established Ready-to-Succeed Scholarship, which provides merit-based scholarships to students who demonstrate academic achievement and come from families with household income of less than $110,000.
  • $100 million for the newly created Ready-to-Learn Block Grants to support academic achievement with flexible uses that include the following: uses allowable under the Accountability Block Grant; establishing, expanding, and maintaining kindergarten and Pre-K programs; hybrid learning; and curriculum alignment.
  • Requirement that the Environmental Quality Board regulations differentiate between conventional oil and gas wells and unconventional gas wells.
  • Elimination of the state’s pension reimbursement payments to charter and cyber charter schools.
  • No public pension reform. However, pension reform may be taken up by the state legislature in the fall.
  • No liquor store privatization or modernization.