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Wolf’s budget plan: Which issues will stick; which will hit the floor?

Todd Brysiak

By Todd Brysiak

When Gov. Tom Wolf was first elected in 2014, the halls of the capitol were buzzing with speculation for weeks leading up to his first budget proposal. What would he propose? How would lawmakers react? What kind of governor would he be?

It was an interesting time in Harrisburg, as it was the first experiment in divided government the state had seen in years. And to be blunt, nobody really knew what that meant for the overall environment. That, of course, changed on March 3, 2015 – and boy, did it change in a big way.

Laid out in the governor’s first budget address was a policy agenda that included just about every major issue discussed over the last decade. Ambitious was a gross understatement. The plan set off a chain reaction of events that led to a brutal gnashing of political teeth and a crushing, nine-month budget impasse. Even the most hardened vets of the Harrisburg scene were dizzied by the events.

But as bad as that period was, a lot of lessons were learned. The experience facilitated a much more cooperative and pragmatic close to the Wolf administration’s first term. While not always pretty, the governor and Republican leaders in the House and Senate found a way to make divided government work, and it led to some historic policy changes and the first “early” budget the state had seen in years.

So, as the governor coasted to victory in the November election, and his Democrat allies in the House and Senate picked up seats, many wondered if the political momentum would prompt his first budget of term two to be a repeat of 2015. To his credit, as we saw last week, he opted more for pragmatism.

Now, let’s be clear: the presentation wasn’t devoid of all angst. Republicans in both chambers expressed concern with aspects of the plan, specifically the proposed spike in the minimum wage and near-billion-dollar increase in spending. But there certainly seemed to be more cautious optimism than tossing of political hand grenades.

With a template to begin working from, we’ll have several months now to see what ideas come together and which hit the cutting room floor. The process for those decisions began this week as budget hearings kicked off in the House. And in a town where opinions and prognostication are plentiful, it seems like this is a good time to add to the glut with a little Triad-centered read on issues we anticipate will garner some chatter before the Appropriations Committees in the coming weeks.

Workforce

No issue has built up more momentum in the last several years than that of Pennsylvania’s workforce. The dreaded “skills gap” has gone from a loose term used in talking points to a legitimate problem that’s impacting our economy. Cited by the governor as one of the primary reasons Pennsylvania missed out on the Amazon HQ2 deal, workforce is a now a Tier 1 concern.  

The governor laid out an ambitious plan to revamp our system, and it was generally well received. Republican or Democrat, House or Senate, you’d be hard pressed to find anyone who’s not focused on closing this skills gap and strengthening our pipeline of quality and qualified workers. While we shouldn’t assume a verbatim acceptance of the Wolf plan, odds are pretty good this issue is well funded and broadly supported when the governor signs his name to the 2019-20 budget bill. But make no mistake, legislative leaders in all four caucuses are going to want some say in how all of this is laid out.

Minimum Wage

It has been a decade since Pennsylvania last bumped its minimum wage to the current rate of $7.25. That’s not been sitting well with most Democrats, including the governor. Proposing to spike the rate to $12 this year and then gradually increase it $15 by 2025, Wolf followed the adage of “go big or go home” on this one.

After years of debate, broader circles are beginning to wonder if the environment in the halls of the capitol is ripe for a deal on minimum wage. But, let’s not jump to conclusions. If the governor is going to draw a line in the sand on $15, then a stalemate is more likely than not. Even the most ardent supporters of the increase would probably have to admit that more than doubling the minimum would affect the labor market. Both the Independent Fiscal Office and the Congressional Budget Office have issued reports in recent years highlighting the adverse effect major rate increases can have on low-wage workers. But what about a lower rate or a more modest increase?

Republicans have generally opposed or been very skeptical of minimum wage increases because of the market effects. But the opposition hasn’t been universal. Even former Sen. Scott Wagner, who opposed Wolf in last November’s election, sponsored a bill increasing the minimum wage. When you’re talking minimum wage support from a guy with Wagner’s conservative credentials and business acumen, it’s a potential sign that a deal could be on the horizon. But at what rate and in exchange for what? Only time will tell, but this is an issue folks should follow closely.

Local Education

There are few certainties when it comes to the state budget each year. One, however, is that education dollars will go up if funds allow. By how much? Well, that’s always up for debate. The governor is asking again for some significant increases for schools, including a $50 million boost for special ed and a $200 million bump in the Basic Ed subsidy.

The newest twist is the governor’s proposal to increase the minimum salary for school teachers to $45,000. In his address, Wolf referred to this as a fully funded mandate, as his budget accounts for the $13 million price tag under the Department of Education (PDE). There’s already legitimate speculation that costs will be higher when other factors are considered. We’ll let the upcoming budget hearings sort that out.

But if you like some good intrigue, consider looking at the PDE district funding assessment for this concept. A quick look presents an interesting dynamic. Many of the counties with teachers seeing the greatest benefit under this plan are in rural areas represented by legislative Republicans. No doubt, this fact could make for an interesting discussion on this issue.

Calling the odds on this proposal’s fate is tough. There are simply too many sidebar considerations that need to be assessed before bets can be placed. But rest assured, this one is going to get a lot of attention.

Taxes and Business Climate

So, the governor didn’t go so far as to invoke the late President George H.W. Bush with his “read my lips” line, but his opening pronouncement that this budget would be free of tax hikes was welcomed by many. Now, this excludes his call for a severance tax to fund state infrastructure needs, but since that idea is outside this budget proposal, we’ll put that aside for now. Lord knows it’s going to generate enough discussion on its own.

The tax-free budget is the first proposed by Wolf since serving as the state’s chief executive, and it shows a few things: the administration is confident on incoming revenues, and the more recent effort to control spending growth has helped right-size balance sheets. Kudos to all parties on the latter.

But even with this bit of good news, there is a still some solid debate to be had. Once again, the governor has called for cutting the state’s nearly 10 percent Corporate Net Income Tax (CNI) rate. While this is almost universally supported, it’s his plan to trade the rate cut with combined reporting that, once again, has feathers ruffled.

Combined reporting is the gift that keeps on giving for tax policy wonks. Albeit complicated to explain, the short of it is that this new tax-filing method would theoretically prevent businesses from shifting taxable income to subsidiaries in other states. Now, most in the business community will argue this shifting doesn’t occur; and even if it did occur, the practice was jammed up years ago when the state enacted its “expense add-back” policy. Clearly, that point hasn’t gained traction with Wolf’s team.

There are a billion talking points attributed to this issue, so let’s not get too far into the weeds here. But to keep with the theme, it seems unlikely that a deal would come on the rate cut without combined reporting, if for no other reason than it would have a significant impact on the budget’s balance sheet. Now, if the state came into a surge of unforeseen revenue between now and June 30, then maybe there would be a chance. But on this issue alone and the proposed trade of a rate cut for combined reporting, it seems unlikely to occur without some other factor being thrown into the mix.

State Police Service Fee

This isn’t the first go-round for this idea, but each previous effort has fallen short for a host of reasons. There’s a real concern about how thin state police services are stretched, and this local fee would help provide funding for new cadet classes. This would be a much-needed addition.

The administration says 67 percent of all municipalities in the state rely on state police service. That’s not an insignificant number, and the impact on the troopers’ workload is significant. At the end of the day, this is very much a public safety issue. So why hasn’t this local-fee concept hit the books in the past?

Lawmakers have yet to light on this idea for many reasons, none more impactful than local effect. It’s no secret that small municipalities throughout Pennsylvania are fighting to maintain firm tax bases and struggling financially. The men and women who represent these areas in Harrisburg are keenly focused on this fact, so the idea of levying a new local fee to be paid to the state isn’t exactly a well-received concept. And when it comes to counting votes, when you have 67 percent of the state’s communities looking at a potential fee hike, it’s plain to see why this concept hasn’t mustered the support needed.

It’s hard to argue against the “fairness” principle upon which this concept was built. But with local budgets so fragile and lawmakers in Harrisburg generally being averse to new taxes and fees, this idea still seems to be taking on water. Could this change? Absolutely. But experience suggests this will be a tough one to close out. 

Combating Opioids

Rarely is there ever universal support for an issue in Harrisburg. Fighting the opioid epidemic, however, is one where practically everyone is on the same page – and for good reason. No issue has been so broad in its impact and tragic in its effect. This crisis has infiltrated every community in Pennsylvania.

To their credit, lawmakers and the administration have aggressively worked to combat the opioid epidemic with precision and cooperative force. They have backed the fight with dollars and expanded policies to help those on the front lines. With new funds lined up as part of the governor’s budget proposal, it’s fair to expect some form of added financial support will make it across the finish line.

It’s also a safe bet that members of the House and Senate touting their own plans will want something included in a final push come June. Whether that is another pot of newly directed funding or strengthened policies, the fight against overdoses will almost certainly include something beyond what the governor has requested – and that’s good for everyone.

Agriculture

Pennsylvania’s agriculture industry has been an integral segment of its economy since the Commonwealth’s inception. Unfortunately, struggles have become more commonplace and concerns are growing.

Efforts to provide budgetary support for ag-centric programs has grown in recent years. The governor’s proposal builds on those recent efforts. Adding new money for a host of new programs and ideas, the state’s farming community could be looking at a slate of new and much-needed support.

Highlights include an increase of $2.6 million to promote and expand the state’s organics market, $5 million to combat agricultural disasters and the continuation of $5 million for the PA Dairy Investment Program. The latter, which was new in 2018, is being viewed as a catalyst to bolster the state’s dairy market – a market that has run into rough times across America.

Nothing says the governor’s requested dollars here will be accepted entirely, but this is one area where lawmakers have historically been very supportive. Those representing rural communities will always make a play for added ag support to protect local farmers, and those in our cities and suburban communities respect and appreciate the industry’s impact. It’s fair to believe some added support will be there for this industry, assuming of course the funds are available to do so.

The Outlook

With Appropriations Committee hearings now on the docket in both chambers for the next month, we can all expect some good political theater. There’s always one hearing that includes some fireworks. But unlike the administration’s first two budget (2015 and 2016), we’re not looking at a minefield of contentious ideas.

Whereas previous budget proposals have looked to rewrite the tax code and included “turn-the-world-on-its-axis policy changes,” this year’s plan was more middle-ground. Now, nobody’s calling for popping champagne in February; there’s still a lot of work to be done and battles to be waged between the negotiating parties.

We’ll all take the next few weeks to weigh the pros and the cons of these and other issues addressed during the budget hearings. Once all is said and done, maybe our crew here at Triad will take up another assessment on the issues mentioned here today. Odds can change as debates grow, you know? Stay tuned.

There are still a lot of questions that need answers. But one thing is for sure: overall, it seems safe to say that the atmosphere is far less toxic than it was four years ago. Let’s hope that continues into June, because that’s good news for everyone.

Todd Brysiak, Triad's VP of Government Affairs, is a former chief of staff for the state House majority leader.

Comments

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Dawson Flinchbaugh

Todd,
Read with interest your comments above regarding the minimum wage.
A few remarks on this debate from the service industry perspective follow.
As you know I own a restaurant, Flinchy's.
Minimum wage in the back of the house is $7.25 - we can't even hire a dishwasher for that! More like $9 or $10.
Front of the house (Bartenders and Servers) minimum is $2.83 per hour plus tips.
If servers aren't making $15-$20/hr we look at their performance.
Bartenders make $30 - $40 per hour.
Hostesses, bar backs, expediters, food runners make $8-$10 per hour plus a tip out from the servers and bartenders so they are easily making $15 up. These people are usually high school kids, first jobs, and some stay with us thru college and beyond.
If the minimum is raised (doubled) then the entry level opportunity for high school kids disappears!
If a dishwasher gets $12-15/hr then all the way up will want more too! This making $12-15 per hour will now want $15-20 per hour!
Quality of service will go down, prices will go up, quality of food will go down etc etc.
The only people who will be happy are the socialists!
Oops there is that nasty word coming out!
See are for actually eliminating the lower minimum for servers and tipped workers.
That would be a disaster - eliminating the incentive to do better is never good.
Hope you can see our side.
Take care and hugs to Ashlyn and your family
Dawson Flinchbaugh

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