Friday, July 18, 2014

Governor Tom Corbett Signs Pennsylvania’s Budget, Vetoes Legislative Spending and Demands the Legislature Resolve the State’s Pension Crisis

           Pennsylvania Governor Tom Corbett, a Republican, recently signed the Commonwealth’s 2014-2015 budget and associated fiscal enabling legislation, but vetoed certain line items.   

The $27 billion budget was approved by the General Assembly shortly before the June 30 constitutional deadline.  Despite a projected revenue shortfall, it met the constitutional requirement of being balanced.  It reduced overall expenditures while boosting spending on education beyond its current record level, did not raise taxes and even revived the phase-out of the capital stock and franchise tax, which is a tax on property that businesses must pay in addition to the corporate income tax.  However, the budget failed to address Corbett’s priority: pension reform.    

The Commonwealth’s rainy day fund had been drained under Governor Ed Rendell, a Democrat.  In this year’s budget, various other reserve funds were tapped, with the exception of the legislature’s own fund balance.  Governor Corbett, disappointed at the General Assembly’s failure to address Pennsylvania’s pension crisis, vetoed $65 million of the legislative fund balance, as well as over $7 million in legislative earmarks.  He is urging lawmakers to address the crisis that threatens not only state finances, but, because teachers are included in the pension fund, the finances of all 500 School Districts in Pennsylvania.  The pension crisis is threatening the Commonwealth’s long-term fiscal health and its current credit rating.  Additionally, it is forcing up school real estate taxes.  There is a pension-reform bill in the General Assembly which Corbett supports that would shift new state employees onto defined contribution plans from defined benefit plans.  Another bill would at least shift the legislators themselves, as well as judges and statewide elected members of the executive branch, onto such plans.  The Commonwealth must also make up for previous state pension funding shortfalls.

Another gubernatorial priority left unaddressed by the General Assembly is liquor privatization.  As I have posted previously, the House of Representatives passed a plan to eliminate the Commonwealth’s wholesale and retail monopoly.  See my post from March of 2013, the Pennsylvania House Passes Liquor Privatization,  There remains support in the House for liquor privatization, but the Senate prefers limited reforms that, at most, would curtail the state retail monopoly on wine and liquor, but retain its wholesale monopoly while keeping its system of retail stores.  Liquor privatization would generate not only one-time revenue through the selling of retail licenses, but ongoing revenue through the continued collection of state taxes on alcohol and fees from the renewal of licenses.  Regardless, resolving the pension crisis is a more significant and urgent priority. 

The Pennsylvania General Assembly must come back from its summer recess and enact meaningful pension reform as soon as possible that heals the Commonwealth’s fiscal ills and lifts the heavy burden on its School Districts.  

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