Pennsylvanians are looking at a tax increase. The only question is who is going to pay and how much.
Will the taxes be imposed on businesses at the state level, or will counties and other local governments be forced to increase their taxes, including property taxes?
It is a question that is particularly critical in the Harrisburg area.
Every budget is a political statement. Each year, pursuant to the state Constitution, Pennsylvania’s political leadership must agree to a budget that is balanced by the June 30 deadline.
That mandate becomes more difficult by the year. For many budget cycles now, the Pennsylvania legislature has engaged in its own form of creative financing. In order to deal with an ever-growing budget deficit, they have passed—and governors have signed—a series of smoke-and-mirror budgets. Projected revenue from new programs is wildly exaggerated, special funds are raided, and the costs are passed on to local governments.
And now the chickens are roosting. The failure to provide real funding for critical programs and a sputtering economy have left the commonwealth with a structural deficit that is estimated at $3 billion or more.
And nobody seems to know where the money will come from.
Oh, there have been proposals. Gov. Tom Wolf introduced a budget that increases state expenditures by 1.8 percent and proposes to pay for it with, among other things, consolidations of state agencies, a prison closure, limiting the use of state police in uncovered municipalities, privatizing the State Farm Show Arena, the institution of a severance tax on natural gas drilling, limiting corporations’ ability to shift tax responsibilities to more tax-friendly states, and a variety of other business taxes and revenue enhancements that include an internet lottery and liquor “modernization.”
The House Republicans responded by passing their own budget that emphasized cuts in state funding for many state/local programs.
And that is where the question of who pays the taxes comes into play. It’s not that these programs will be eliminated—many are mandated under state law—but where the financing will come from.
In many of these cases, there will be no choice but for the money to come from local governments, particularly the counties. The proposed cuts for health, human services and criminal justice funding would be so severe that there will be little choice left for the counties but to increase their own property taxes.
And then there is the elephant in the room—what to do with the state pension systems. Decades of state underfunding, poor investment decisions and excessive fee schedules have left the state’s two big retirement funds in a fiscal quandary. This is a statewide problem, of course, but in central Pennsylvania, it is a crisis.
For the counties in this area, pensions are economic generators. In 2016, the county whose retirees received the largest pension payments was, by far, Dauphin County at $304 billion. Second place? You won’t be surprised to learn that it was Cumberland County at $195 million.
So, when you hear that various legislators are proposing plans to slash pension benefits for state workers, ponder for a second what it will mean to area restaurants, grocery stores and whatever shopping mall retailers manage to stay in existence.
There is one more reason for Harrisburg residents to pay particularly close attention to what happens with this budget. It is the fate of the $5 million that is annually given to the city by the state for “fire protection.” For decades, this budget appropriation has been a way for the commonwealth to soften the loss of revenue for the many state-owned properties within the city limits.
The Republican House-passed appropriations bill eliminates the $5 million funding. The loss of this money would be devastating for the city’s public safety programs and would have egregious consequences for the city’s effort to achieve fiscal recovery under the “Strong” plan.
It is easy to understand why eyes glaze over when the state’s budget problems are reported. The failure to pass the budget in a timely fashion has become a staple of yearly Harrisburg springtime news, like the falcons in the Rachel Carson Building or the high school proms.
And who can keep track of these budget numbers or possibly understand what’s real and and what’s alarmist rhetoric?
And, yes, this budget fight is still in the first half of what will probably be an overtime game. The Senate has not had its shot yet, and Republican leadership there has expressed its unease with such a heavy reliance on enhanced gambling and liquor revenue.
But everyone in this area needs to understand the stakes as the real budget negotiations begin in June. And the biggest question will be this: Will the structural deficit result in state-level business taxes as proposed by Gov. Wolf or in local tax increases as will inevitably be the result of the House Republican proposal?
Mike McCarthy and Joseph Powers are veteran observers who between them have nearly eight decades in and around state government.
