Wolf's $30B budget: 'Bold' blueprint or dead on arrival?

HARRISBURG - Gov. Wolf on Tuesday unveiled a nearly $30 billion spending plan that would raise the state income and sales taxes to pay for sweeping property-tax cuts in every school district.

The release of Wolf's first budget marked a possible turning point for the state, as his proposal would fundamentally revamp how - and how much - residents pay in taxes.

"I campaigned on the idea that we need a new approach to governing Pennsylvania - one that challenges the status quo and takes on old problems in fundamentally new ways," Wolf told a joint legislative session.

But the moment could be short-lived. No sooner had the Democrat wrapped up his speech than the Republicans who control the House and Senate hurled cold water on it.

Their message was unequivocal: The governor's $29.9 billion spending plan is a no-go.

"This is the most massive tax-and-spend plan in recent history," said Senate President Pro Tempore Joe Scarnati (R., Jefferson). "And if anyone doesn't believe those tax increases aren't coming out of the pocket of working, middle-class Pennsylvanians, they need to get a new pencil and calculator."

The administration appeared unruffled by the criticism, urging that the governor's plan be viewed not as a string of tax changes, but rather a sea change in policy emanating from the Capitol that focuses on bold initiatives.

Said Wolf: "I learned as a business owner that you can disagree with people without being disagreeable, and that on every issue, if you are willing to talk, there's a better chance that you can find truths that both sides can share."

The proposal would raise existing taxes and impose new ones at levels that have not been seen in years. And the new revenue would land at a critical time: The state is staring at a more than $2 billion deficit and increasing costs for public employee pensions and health care for the poor.

Wolf's plan would use sizable chunks of that new revenue for a nearly $1 billion bump in education funding, which had been sliced under his Republican predecessor. That includes an additional $400 million for basic education, $120 million more in early childhood subsidies, and increased funding for community colleges and the four state-related universities.

On paper, Wolf's spending plan for the fiscal year that begins July 1 is about 3 percent higher than this year's $29 billion spending plan. But that is because it doesn't account for nearly $2.1 billion that the governor would transfer into a special fund for property-tax relief, as well as $1.7 billion moved to another fund for public school employee pension costs.

If that money is taken into account, Wolf's budget proposes spending 16 percent over this year.

The plan for increased spending left Republicans on edge Tuesday, and sets the stage for very difficult negotiations in the coming months, even though some of the governor's ideas - such as property-tax relief as well as corporate tax cuts - are proposals that generally have GOP support.

Senate Majority Leader Jake Corman (R., Centre) called Wolf's spending plan "sort of a mirage."

"It's not based in reality. . . . We don't have the votes for it," said Corman, saying Wolf's budget fails to address one of the state's most pressing problems: the skyrocketing cost of public employee pensions.

Democrats hailed it as a bold plan loaded with good ideas.

"We've witnessed a historic budget plan," said House Minority Leader Frank Dermody (D., Allegheny). "Gov. Wolf promised a fresh start for Pennsylvania and he delivered on the promise today. The proposal is fair and will make Pennsylvania prosper."

Wolf's budget would increase the state's personal income tax from 3.07 percent to 3.7 percent, a 20 percent increase that would raise $2.3 billion. The administration said the new rate would still be the third-lowest of all states with an income tax, although Pennsylvania is among only a handful of states with a flat tax.

The budget also calls for hiking the sales tax from 6 percent to 6.6 percent - a 10 percent increase - and extending it to more goods and services, which would raise $1.5 billion. Philadelphia's 8 percent sales tax would remain unchanged.

Food, clothing, and prescription drugs would continue to be exempt, but other goods would not: Newspapers, candy, and personal hygiene products are examples of the items that would be subject to the new sales tax.

Much of the money raised from those tax hikes would go toward funding Wolf's proposed property tax relief plan, worth $3.8 billion, for all 500 school districts in Pennsylvania.

If legislators approve it, Wolf said, it would increase the state's share of funding for public education to 50 percent for the first time in four decades. It would also overhaul how education is funded in Pennsylvania by addressing the problem of school districts' increasingly turning to local property tax hikes to make ends meet.

Payments to school districts would begin in 2016 and would drive more money to high-tax, high-poverty districts. The administration estimates more than a 50 percent average reduction for homeowners.

Renters would also get a break: Those earning $50,000 or less would receive a rebate, capped at $500.

In Philadelphia, Wolf's property-tax relief plan would primarily target the city's wage tax.

City residents would see their wage tax rate reduced from 3.92 percent to 3.48 percent, and the rate for nonresidents who work in the city would fall from 3.49 percent to 3.11 percent.

The plan would also repeal Philadelphia's recently enacted $2-per-pack cigarette tax, which was dedicated to helping the city's cash-strapped schools. Instead, a statewide $1 per pack hike would take effect, as well as new taxes on smokeless and loose tobacco, cigars, and e-cigarettes.

The plan won high praise from city leaders Tuesday.

"The budget is incredible in its substance and priorities," Mayor Nutter said at a news conference in Harrisburg. "It's a bold approach for Pennsylvania."

Also proposed in Wolf's budget:

Increasing the minimum wage from $7.25 to $10.10.

A new 5 percent tax on the extraction of natural gas from the Marcellus Shale, plus a per-cubic-foot fee on gas, which together would raise roughly $1 billion for public education.

Halving the state's oft-maligned 9.99 percent corporate net income tax. The rate would be cut to 5.49 percent in 2017 and 4.99 percent in 2018.

"Modernizing" the state-run wine and liquor system to pay for a proposed $3 billion in borrowing to refinance the public school employee pension obligations. Details were scant, but among other things, modernization would include adding Sunday hours for State Stores.

In the fiscal year starting July 2016, the administration would allocate $80 million in new profits from the sale of wine and liquor to school districts to help them reduce pension payments. In the 2017-18 fiscal year, the state would start transferring $185 million to districts every year to pay off the $3 billion bond.

Rep. Brian Sims (D., Phila.) urged Republicans to give the proposal a fair hearing.

"Gov. Wolf has put forth a bold budget plan to undo Corbett's cuts to education, provide a wage-tax break in Philadelphia, and pull Pennsylvania up from the rank of 50th in job creation," he said.

Rep. Bill Adolph (R. Delaware), chairman of the House Appropriations Committee, was less sanguine, saying higher sales taxes would cost Pennsylvanians and send shoppers across the borders.

"They're going to have less to spend," he said. "My first reaction was, 'Wow.' "

A state budget must be approved by July 1.