PA Chamber CEO: Final state budget must address the pension crisis


Over the past year and a half, Pennsylvania’s fiscal landscape has been marred by protracted budget battles, repeated credit downgrades and the threat of multi-billion dollar tax increases. Unfortunately, in his 2016-17 budget address Gov. Tom Wolf continued his calls for many of the same tax and spend policies that played a central role in the nine-month 2015-16 budget impasse. In addition to policies that will increase labor costs for Pennsylvania employers, the governor’s budget plan includes $2.7 billion in new and increased taxes on Pennsylvania’s working families and businesses. What it doesn’t include are any significant reforms to address the Commonwealth’s growing cost drivers.

The governor’s proposed $33.29 billion budget calls for a multitude of tax increases, including: a retroactive 11 percent increase in the Personal Income Tax; a retroactive increase in the Bank Shares tax; an additional 6.5 percent tax on the natural gas industry; an expansion of the sales tax base; an increase in the waste removal tax; a monthly cap on the vendors allowance for sales tax; and a new tax on property, casualty and fire insurance; among other tax increases. In a slow-growth economy, these proposals hurt Pennsylvania’s competitive edge and create new barriers to building a better future.

The administration’s continued demands for an additional punitive tax on the natural gas industry is counterproductive, given the far-reaching negative repercussions it will create. While the development of the Marcellus Shale helped Pennsylvania’s economy weather the recession and has led to the creation of thousands of good-paying, family-sustaining jobs, current market conditions have led to a decline in investment. In fact, the state has seen a 65 percent reduction in the number of operating rigs compared to last year. Despite these economic realities, the administration is determined to inflict another tax burden that jeopardizes the industry’s future in the Commonwealth. Rather than attacking the industry, we should be focusing on building the infrastructure needed to get natural gas to market – which would in turn enhance our national security through the increased utilization of domestic energy sources.

Additionally troubling is the administration’s call to increase state spending without addressing the greatest threat to our long-term fiscal health – the public pension crisis. According to the governor’s budget office, the combined unfunded liability of the Public School Employees’ Retirement System and the State Employees’ Retirement System is expected to balloon to more than $58 billion this year. This debt is impacting the budgets of both the Commonwealth and school districts across the state – requiring more money each year to go towards pension obligation payments and diverting funding away from the classroom and other important state programs. That’s why pension reform is so critical. Comprehensive, structural reforms will keep the pension systems sustainable and ensure that more education tax dollars are directed toward student achievement.

On top of calling for billions of dollars in tax increases, the administration is also pushing for a government mandated wage hike. History has shown that these types of mandates lead to numerous unintended consequences, especially among small business owners. A report from the nonpartisan Congressional Budget Office found that an increase to $10.10 an hour could lead to the loss of between 500,000 and one million jobs nationwide. A Pennsylvania-specific study by the Independent Fiscal Office showed similar results – with the loss of 31,000 Pennsylvania jobs. There are simply better, more effective ways to address poverty and close the income gap – including providing necessary skills-training through strengthened workforce development programs, and implementing an Earned Income Tax Credit to better help low-wage earners who are supporting families as they move upward through the workforce.

Simply put, raising taxes to pay for more government spending while doing nothing to address the Commonwealth’s cost drivers is fiscally irresponsible. Likewise, policies that negatively impact job creators by increasing labor costs will further hurt Pennsylvania’s competitive edge and economic climate. In order to move the Commonwealth forward toward the creation of a healthier economy, we need a responsible budget that protects taxpayers, addresses the pension crisis and promotes private-sector job growth.

Gene Barr is president and CEO of the Pennsylvania Chamber of Business and Industry.