Governor Tom Corbett Proposes 2.4% Spending Increase for 2013-2014

Governor Tom Corbett has presented his general fund budget proposal for the 2013-2014 fiscal year that begins on July 1st. He calls it a balanced budget with no tax increases. Corbett’s plan calls for the state to spend $678.76 million more than it has in the current budget, an increase of 2.4%. In his budget address, the governor also laid out his plans for pension reform and transportation infrastructure.

Highlights of the budget include the first increase in basic education funding in two years. The 1.7% increase amounts to about $90 million. Additionally, the governor is proposing a block grant program to be funded by the state’s divestiture in the liquor business. That funding, which would total $1 billion over four years, could be earmarked for school safety, K-3 readiness and enhancing access to STEM programs (science, technology, engineering and mathematics), among other programs. The governor says there would be an initial $200 million available for the grants by the 2014-2015 school year.

Governor Corbett’s proposal also eliminates the Capital Stock & Franchise Tax on January 1, 2014, and calls for a reduction of the Corporate Net Income tax to 6.99% over ten years from 2015-2025. That CNI tax is currently 9.99%.

The budget plan also includes $14.7 million for three new State Police cadet classes.

On pension reform, the governor is proposing big changes for the two public pension funds that have been declared in a state of crisis. The State Employees Retirement System (SERS) and the Public School Employees Retirement System (PSERS) are both drastically underfunded and threaten to gobble up massive pieces of future state budgets. Among the changes proposed by Governor Corbett, new employees would be automatically enrolled in a 401(a) retirement plan where they will be required to contribute at least 6.25% of their salary (7.5% for PSERS). The governor says current employees would not see any changes to benefits already accrued and current retirees would see no changes at all in the benefits they are collecting. SERS is currently only 65.3% funded while PSERS is 69.1% funded.

On transportation funding, the governor is proposing removing a cap on the Oil Company Franchise Tax. Currently, distributors pay that tax based on the artificial cap of $1.25 per gallon, wholesale. Gas prices, of course, are well beyond that threshold, and the governor wants to “uncap” that price over a 5-year phase-in. Distributors would pay more in taxes under the plan, but to offset any potential attempts to pass along that increase to consumers, the governor also wants to lower the state tax on gasoline by a penny per gallon in 2013-14 and another cent in 2014-15. The current state gasoline tax is 12 cents per gallon.

Next up, the overall spending plan will be the subject of dozens of legislative budget hearings in the coming weeks. Then legislative leaders will carve out a final budget that will be sent to the floors of the House and Senate, probably in late June.


Scarnati Doesn’t Want Budget Hostages

As the key issues on this spring’s legislative agenda become clearer, the Senate’s top Republican says now is not the time to start linking them together.  “That’s Washington-style politics and we don’t need that,” Senate President Pro Tem Joe Scarnati (R-Jefferson) told reporters who huddled into his conference room at the state capitol. 

Joe Scarnati

Joe Scarnati

Scarnati does not want to see the liquor privatization issue tied to transportation funding.  “I think we’ve talked about it enough,” Scarnati said, discussing the urgency of improving the state’s transportation infrastructure.  “We have a study, we have a report; we have everybody feeling the necessity to get this done.  Delaying it and linking it just really doesn’t do any good for the commonwealth.” 

His comments come as the Corbett administration has also been signaling that the pension reform issue will be tied to the state budget, specifically education funding.  “The issue of cutting public education is a very sensitive issue… and putting an either-or doesn’t make this budget a lot easier to get done.” 

Scarnati believes pensions should be addressed, and that the first step should be passing a bill that enrolls all newly-hired state workers in a 401(k)-style defined contribution retirement plan.  “That’s the tourniquet that stops the bleeding, and that’s a move that we need to make,” he says. 

But Scarnati does not know if the votes exist to reduce the future pension benefits of current state employees.  He’s anxious to see the options that Governor Tom Corbett is expected to lay out along with his budget plan, and believes there’s a willingness to work toward a solution to the public pensions’ $41-billion dollar unfunded liability.

Gov. Ready to Focus on Pension Reform This Fall

Fresh off his second budget cycle, Governor Tom Corbett wants to address Pennsylvania’s rising pension costs this fall.  While the Republican majority did not invite Democrats to the table for budget negotiations this spring, Corbett says public pensions are a different matter altogether.  “This is not a partisan issue… so we’ll probably be reaching out to them,” he explained during a recent q&a with the media.

Governor Tom Corbett

Gov. Tom Corbett

The governor says it was interesting to see many Democrats supporting some aspects of the budget package – including education reforms and an ethane cracker tax credit.

The state’s pension obligation will increase another $500 – $600-million next year alone, and there’s no relief in sight until 2024.  Without action, there will be less and less funding available for other state programs.  “It’s not just a problem that we have at the state.  Municipalities & school districts across the state have that problem, and there are problems like that across the nation,” Corbett says.

Numerous bills have been introduced in the House.  Senate Republicans plan to act on a plan to move all new hires to a 401K-style pension plan where the employee bears the risk, not the employer (in this case the taxpayer).

But, Corbett knows there’s no silver bullet.  “If there was, somebody would have found it already, we’d all be doing it.”  He anticipates a thoughtful, cooperative discussion this fall.

Pension Reform Proposal Introduced in the State House

Senate Republicans announced a pension reform proposal late last month, now there’s a House package. The two house bills would require future state and school district employees to enroll in a defined contribution plan, similar to a 401K.

The state or school district would contribute 4% and the employee would have to contribute at least 4% of their salaries.  The plan also includes an incentive for current employees to switch. If they agree to freeze their benefits and join the new plan, the employer would contribute 7%, instead of 4%. The employee contribution would be at least 4%.

Representative Warren Kampf  (R- Montgomery/Chester) says the current defined benefit system is unsustainable. He says under his plan, the contributions would go into an account controlled by the employee. House bill 2453 applies to state employees and House Bill 2454 applies to school employees.

The two pension systems are currently under funded by about 40 billion dollars. Representative Kampf says the taxpayers he has talked to are angry and want some change.   He says this plan provides change. He adds that it says to the taxpayers “We’re smart enough now to realize we cannot continue to add more people to this system, because it only makes the problem worse.”

Representative Stephen Bloom (R-Cumberland) says it fits into the context of getting Pennsylvania back on the right track fiscally and making us a solvent state without an excessive burden on the taxpayers.

Representative Kate Harper (R-Montgomery) says something has to be done.  She says the pension “deficit” is bigger than the state’s entire budget.