October 3, 2017
Efforts to fix Pennsylvania's unbalanced state budget hit a new flashpoint Monday, as industry and some lawmakers pushed back against a plan to end a longtime sales tax exemption for commercial storage.
The tax, revived last week by legislative leaders as an alternative to a severance tax on gas pulled from the state's Marcellus Shale reserves, would raise close to $175 million over the course of a full year, budget negotiators said.
That could be a key part of a roughly $400 million recurring revenue package needed to offset new spending in the 2017-18 general fund budget.
Or, as business and industry representatives argued Monday, just the latest in a series of business tax proposals that, by targeting specific industries, chill the business climate for all firms looking to invest here.
Pennsylvania, because of its proximity to major markets and a necklace of interstate highways, has seen huge growth in the public warehousing sector over the last generation.
Public warehousing refers to the practice of producers' essentially outsourcing their warehousing needs to third-party operators, who provide the storage and distribution to retail vendors as needed.
But the use of storage services itself has, to this point, not been subject to the state's 6 percent sales tax.
That would end according to the revenue proposal House and Senate leaders began trying to sell to their members Monday.
Senate Appropriations Chairman Pat Browne, R-Lehigh County, said Monday that lifting the exemption is one of the few tax proposals - aside from expansion of legal gambling - that the House Republican leaders are willing to consider.
Balancing budget will involve some pain.
The Senate, of course, voted for a shale severance tax earlier this summer. But House Republican leaders have refused to consider changing Pennsylvania's status as the only shale gas producing state in America without one.
That resistance has left negotiators with few alternatives.
"We're making choices among very difficult items as it relates to balancing a budget," Browne said Monday, adding that he is sensitive to those raising concerns about the new tax.
"None of this is ideal... But neither is a $2.2 billion cut in spending if we can't bring this to balance."
Gov. Tom Wolf, too, had proposed elimination of the commercial storage exemption in his initial budget proposal last winter.
The change had been dropped from all of Wolf's more recent budget proposals, but it was revived in last week's negotiations after it became clear that it was one of the few tax plans the House GOP leaders would take to their members.
Industry advocates have been pushing back hard, starting this weekend.
John Milliron, a lobbyist for the commercial warehousing and logistics industries, told PennLive Monday there is a real risk that elimination of the sales tax could cut off the growth growth in the industry here.
Businesses that currently lease space in warehouses could relocate to New Jersey, New York, Maryland or Ohio when their current contracts expire in an effort to avoid this new cost - especially when Pennsylvania would join only five other states in taxing commercial storage.
"Warehouse customers can easily choose providers anywhere along the supply chain, including neighboring states," Corey Rosenbusch, president of the International Association of Refrigerated Warehouses, wrote in a letter to lawmakers earlier this year.
Trade group International Warehouse Logistics Association cited a 2007 study by Michigan State University showed a warehouse tax passed there would result in the loss of more than 7,000 warehouse and transportation jobs in Michigan.
State leaders there ultimately repealed that, and other taxes on services, before they took effect.
Business leaders in Pennsylvania hope they have similar success in saving the exemption here.
"We ought to be encouraging investment here, not targeting companies who have put their money in Pennsylvania," said Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry.
"When we begin targeting industries, we begin sending a very dangerous message."
Ironically, their message appeared to be resonating most strongly with rank-and-file House Republicans, many of whom have argued the state could shave spending or tap surpluses in special accounts to eliminate the need for any tax increases.
"I hope it gets taken off the table," said Rep. Steve Bloom, R-Carlisle.
"This is another situation where, rather than make modest adjustments in spending, this state is looking to target a single industry with a new tax penalty when that industry is growing jobs and paying taxes already."
"There's enough money that already in the state's coffers to deal with this year's spending issues," agreed Rep. Daryl Metcalfe, a Republican from Butler County.
The proposal was said to be drawing opposition from certain organized labor groups, too, though it was not immediately clear whether that was gaining significant traction with the House Democrats.
What we'll learn in the next day or two is whether the mounting opposition to the storage tax can be put down, or becomes powerful enough to send the emerging budget package back to the drawing board.