G-A's legislators react to governor's proposed budget

The Associated Press

Pennsylvania Gov. Tom Wolf asked lawmakers Tuesday to help fill a $3 billion projected deficit by imposing a tax on Marcellus Shale natural gas production and signing off on potentially touchy cuts in spending, including transportation aid to schools.

The Democratic governor also wants to charge local governments that rely solely on state police for law enforcement coverage and lease the huge Pennsylvania Farm Show Complex in Harrisburg. Education would get more money, albeit more modest amounts than Wolf had sought in previous years, and programs for the poor and vulnerable would remain intact.

His requests to the Republican-controlled Legislature come with a slew of efficiency measures the governor rolled out Tuesday, including shifting more of the rising cost of medical care for the poor to the federal government. Wolf also targeted hundreds of millions of dollars in what the administration views as business tax loopholes and wants lawmakers to approve an increase in the minimum wage to $12 an hour, counting on the resulting higher tax receipts to help balance the budget.

"Our commonwealth has been operating with a structural deficit for a long time," Wolf said during a 22-minute address to a joint session of the Legislature in the ornate House chamber. "That means Harrisburg has been living beyond its means. Households can't do that, and neither can we."

All told, Wolf's $32.3 billion spending plan for the fiscal year that starts July 1 would seek $1 billion in new spending, or 3.2 percent more, including $230 million needed to plug holes on the current year's books.

Highlights of Pennsylvania Gov. Tom Wolf's spending plan for the 2017-18 budget year that starts July 1:

THE BIG PICTURE

— Increases spending through the state's main bank account to more than $32.3 billion. Including approximately $230 million being requested for the current fiscal year, Wolf is seeking approval for $1 billion in new spending, or 3.2 percent of this year's enacted budget of just over $31.5 billion.

— Does not increase tax rates on sales or income.

— Raises taxes by $1 billion, largely by imposing a new tax on Marcellus Shale drilling or eliminating what the Wolf administration views as tax loopholes.

— Assembles a $2 billion grab bag of spending cuts, efficiency measures and revenue sources that do not involve raising taxes.

STATE TAXES

— SALES: Keeps rate at 6 percent, but eliminates exemptions on custom programming; design and data processing; commercial storage; and aircraft sales, use and repair, to raise $460 million. Effective July 1, 2017.

— NATURAL GAS: Imposes a new tax on natural-gas production at 6.5 percent of value to generate $294 million. Effective Jan. 1, 2017.

— CORPORATE INCOME TAXES: Limits deduction for net operating losses to 30 percent of taxable income, instead of the greater of 30 percent or $5 million. Effective Jan. 1, 2018. Lowers corporate net income tax rate in steps to 6.49 percent, from 9.99 percent, in 2022, and changes how it is calculated to stop businesses based in other states from avoiding the tax on their Pennsylvania operations. The moves would raise $81 million.

— INSURANCE PREMIUMS: Expands the insurance premiums tax to most previously exempt insurance entities to raise $141 million. Effective Jan. 1, 2018.

— TAX CREDITS: Reduces available tax credits by $100 million.

REVENUE MEASURES

— Leases the Pennsylvania Farm Show Complex and Expo Center in Harrisburg to a private entity for 29 years for an upfront payment of $200 million. The state would then lease it back, with an annual rental fee.

— Collects $25 per person fee from municipalities that do not have their own full-time police force and instead rely solely upon state police for coverage to raise $63 million.

— Calls for lawmakers to raise the state minimum wage to $12 an hour, up from the federal minimum of $7.25 an hour, to raise $95 million in net new income taxes.

— Transfers $165 million from the Worker's Compensation Security Fund.

— Expands an assessment on insurance companies that administer Medicaid programs to raise about $110 million.

SAVINGS MEASURES

— Department of Corrections and Pennsylvania Board of Probation and Parole would merge into new Department of Criminal Justice; the Human Services, Health, Aging and Drug and Alcohol Programs departments would merge into new Department of Health and Human Services. Savings: over $100 million.

— Reduction in work force levels to save $143 million.

— Closure of Pittsburgh state prison to save $81 million.

EDUCATION

— Increases aid for public school operations and instruction by $100 million, an increase of nearly 2 percent to $6 billion.

— Increases early-childhood education funding by $75 million, an increase of 38 percent to $271 million.

— Increases special education funding by $25 million, an increase of 2 percent increase to $1.12 billion.

DEPARTMENT SPENDING

— EDUCATION: Grows 3.5 percent to $13.3 billion.

— HUMAN SERVICES: Grows 5 percent to $12.9 billion.

— CORRECTIONS: Flat at $2.6 billion.