BUDGET 2018/2019: The “Super Bowl” of State Government

by McNees Wallace & Nurick LLC
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Congratulations to the Philadelphia Eagles, and its passionate fans, for winning Super Bowl LII and bringing the Lombardi Trophy back to the Commonwealth of Pennsylvania! Capitol Buzz celebrates your success, and the whole state stands with you to say “Fly Eagles Fly!

With Sunday marking history for Philadelphia football fans, today, Governor Tom Wolf kicked off the “budget season” by unveiling his 2018-19 budget to a packed joint session of House and Senate members Tuesday afternoon. The Governor’s address is the start of a lengthy process that will culminate in the passage of a state budget, which is, in many ways, the “Super Bowl” of State Government.

The politics surrounding 2018, capped by what is already a highly contested gubernatorial race, will certainly play a part of this year’s budget process. Governor Wolf outlined his priorities and goals for the Commonwealth today, announcing a budget plan that would spend close to $33 billion, with no projected increases in state sales or personal income taxes this year, and a proposed cut in the state’s Corporate Net Income Tax over five years. This is not surprising in a gubernatorial election year, and some experts speculate tax increases may be more of a reality in 2019-20. The Governor also proposed instituting a severance tax on natural gas drilling, as well as some unpopular corporate tax reporting changes that could limit support among Pennsylvania’s business community.

It will be important to see how legislative leaders in the House and Senate actively respond to the Governor’s proposal over the next few months. Initially, Republican leaders seemed cautious of the Governor’s plan, which increases spending over last year’s budget by over 3 percent. Holding the line on spending and tax increases will be a priority for the majority party in both chambers, and they are skeptical of increasing spending after the state has rebounded from a $1.5 billion deficit last year. Although they support funding education and human service programs, especially increases in career and technical education funding which they believe helps to spur job creation, Republicans are calling for accountability and a responsible budget plan. Job creation and investment will also be a focus, and Republicans are calling for the Governor to take full advantage of the new federal tax law changes. They believe this will allow Pennsylvania businesses to maximize investments and allow for greater job creation in communities across the state.

Democratic leaders appear to be more receptive to the Governor’s proposal, agreeing with the Governor that boosting funding for education, including additional money for pre-K programs and special education services, should be the state’s top priority. In addition, Democrats seem to agree with the Governor that investing in career and technical education programs will help sustain job creation. Democrats also agree with the Governor that raising the state’s minimum wage and instituting a severance tax on natural gas drilling will increase revenue for the state, and should be a focus of this year’s budget.

Although the Legislature did not embrace the Governor’s proposal in its entirety, all leaders agreed that the Governor’s plan to tackle the opioid crisis should be a priority in 2018.

As the finer points and details of the Governor’s budget proposal become clearer in the coming days, Capitol Buzz will provide more analysis on some of the areas important to Pennsylvania and your business. We will also provide our insights on how the Legislature will tackle the proposal, and how they plan to address the most pressing issues facing the Commonwealth. As always, our analysis will consider our clients and how the state budget and related actions can impact your business plans.

Below are some of the highlights regarding the Governor’s FY 2018-19 Budget proposal:

The Governor’s budget proposal looks to boost EDUCATION FUNDING by $225 million. The new funding includes $100 million increase in basic education funding; $20 million increase in special education funding; $40 million increase in Pre-K and Head Start funding; $15 million increase in PA State System of Higher Education funding; and, $50 million increase in career and technical education funding, including $40 million for the new PASmart program, an initiative to align workforce development efforts across state agencies.

­­­­­­The Governor’s budget proposal will put the state’s growing OPIOID ADDICTION CRISIS front and center. The Governor has already declared the opioid and heroin epidemic a statewide disaster emergency. To help fight the crisis, the Governor is asking for $33 million in additional funding for opioid-addiction treatment and specialty drug courts. This includes $26.5 million in federal Cures Act funding; $2 million to expand access to specialty drug courts; and, $4.5 million for home visiting services for families affected by opioid use disorder.

The Governor’s budget proposal would increase funding for HUMAN SERVICES, including an additional $74 million for services for individuals with intellectual disabilities and autism. This includes $16 million for in-home services for almost 1,000 intellectually disabled or autistic individuals. Additionally, the Governor proposed an extra $25 million for Child Care Works – a program that provides subsidies to help pay child care fees for low-income working parents – which would leverage an additional $5 million in federal funds.

In addition to educational investments, the Governor’s budget proposal would increase funding to help spur JOB CREATION, including a $5 million increase for PA First program. In addition, the Governor proposed $8 million in total funding for WEDnet, and continuing the $12 million investment in manufacturing programs across the state.

Additionally, the Governor proposed an increase in the STATE’S MINIMUM WAGE to $12 an hour, which the Governor believes would reduce entitlement costs at the state level by an estimated $101 million a year, and potentially $600 million a year in federal cost savings. Concerns were raised, however, of the impacts raising the state’s minimum wage would have on businesses across the Commonwealth.

The Governor’s budget proposal will once again call for the MERGER OF EXECUTIVE AGENCIES, including a request to merge the Department of Human Services and the Department of Health.

The Governor’s budget proposal also addresses PUBLIC SAFETY issues, including $6 million for a pilot program for the Pennsylvania State Police to purchase body worn cameras. In addition, the proposal establishes a $25 per capita fee on municipalities that utilize the Pennsylvania State Police to fund four State Police Cadet classes and increase complement by 100 troopers. The budget also provides $53 million to modernize the state’s Statewide Radio System, and invest $300 million over the next five years for road and bridge construction and maintenance.

In addition, the Governor’s budget proposal will once again propose a SEVERANCE TAX ON NATURAL GAS DRILLING. According to the Governor, the proposal would mirror a plan passed by the Senate, but failed in the House last summer, while keeping the local impact fee for host communities intact. There is no doubt that the implementation of a shale tax will continue to be a contentious issue, as opponents continue to argue that any additional energy taxes will discourage capital investment, restrict job growth and limit Pennsylvania’s downstream manufacturing opportunities they say are present through natural gas.

Again, stay tuned for more information and analysis regarding the Governor’s FY 2018-19 budget proposal in the coming weeks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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