July 13, 2016
Taxes on tobacco and digital downloads and changes in gaming and wine sales will pay for $31.5 billion spending plan.
HARRISBURG — Pennsylvania has an annual budget — nearly nine months sooner than it took last year.
The Republican-controlled Legislature on Wednesday approved budget bills that use new taxes on tobacco and digital downloads, and changes to gambling and wine sales in the state, to pay for the $31.5 billion spending plan it passed last month. Gov. Tom Wolf pledged to sign them.
The swiftness of the deal, reached less than two weeks after the July 1 deadline, stood in contrast to the partisan divide that gridlocked the Capitol last year and had defined much of Mr. Wolf’s first term.
The agreement delivers more money for two of his priorities: public schools and opioid and heroin addiction prevention. But Mr. Wolf was forced to compromise on his demand to avoid one-time cash infusions to balance the books; the deal contains about $700 million in such maneuvers.
Republicans prevailed in their effort to block any broad-based taxes, and won changes to the state-run alcohol sales system that some have hailed as the first step toward privatization. Those changes could bring $149 million in new revenue, and legislators hope to yield more by expanding gaming.
A side-issue involving loosening caps on charter school enrollment, which critics said would have hurt some cash-strapped school districts, had threatened to derail negotiations. But officials removed it from the budget talks and said the issue will have to wait until a later date for a resolution.
Also delayed will be crafting the gambling expansion bill that legislators are banking on raising $100 million to balance the budget.
That later date won’t be until the fall: After wrapping up their budget votes, lawmakers recessed for the summer. They are not due to return until late September, and then only for a short session, in part because it is an election year.
Still, striking a deal on a revenue plan was momentous, particularly given the recent partisan history in Harrisburg. Mr. Wolf praised it as “an important step forward.”
“Today’s passage of a revenue package means that we avoid another lengthy impasse, our budget is balanced this year, and we have greatly reduced the commonwealth’s structural budget deficit,” he said in a statement.
It had been a difficult process in Pennsylvania’s tax-averse Legislature, where many Republicans early on declared they would not raise broad-based taxes, such as the personal income and sales tax.
Last year, Mr. Wolf and Republican leaders wrangled for nine months over how much to spend and how to pay for it. In the end, the Democratic governor refused to sign a GOP-crafted budget, instead allowing it to lapse into law without his signature.
The problem during this year’s talks was that legislators approved a spending plan by the July 1 start of the new fiscal year — but not a way to pay for it.
The last few weeks were dominated by closed-door meetings to find ways to raise new dollars. On Sunday, Mr. Wolf allowed the $31.5 billion spending blueprint passed by the Legislature to lapse into law by neither signing nor vetoing it.
Over criticism that his actions flouted the state constitution, which requires a balanced budget, Mr. Wolf said his inaction wasn’t a sign of protest. He said he did it because he believed the Legislature could turn around and quickly deliver a revenue plan.
Whether calculated political bluff or not, it produced results.
The final agreement calls for a $1 tax increase on a pack of cigarettes, from $1.60 to $2.60, to generate $430 million. It imposes a 40 percent tax on the wholesale price of electronic cigarettes, as well as a 55-cents-per-ounce tax on roll-your-own tobacco and smokeless tobacco, raising $63 million between the two. Cigars would continue to be exempt.
The state sales tax would be extended to include digital downloads of books, music, games, movies, apps and satellite radio services, to raise $47 million. Another $100 million would be raised through a tax-amnesty program, and another $16 million by extending the state’s 3.07 percent personal income tax to lottery winnings.
The Legislature already has passed a bill to allow private retailers, such as supermarkets, to sell wine. It is among several changes in Pennsylvania’s strict liquor laws that could put an additional $149 million in state coffers.
And though Mr. Wolf has been critical of using one-time fixes to help fund the budget, the revenue package calls for borrowing $200 million from a surplus in a state medical malpractice insurance fund, to be repaid over a five-year period starting July 1, 2018.
The House has backed a proposal that would legalize online gambling, making Pennsylvania the fourth state in the country to do so, and expanding slots to airports and off-track betting parlors. The Senate has signaled that it will make changes to that plan.
Despite the high stakes in the budget bills, debate in the House was minimal — and in the Senate, non-existent. House members voted 116-75; and the Senate passed the bill 28-22.
The votes were largely bipartisan, but conservative House Republicans criticized the revenue package as unnecessarily whipping taxpayers with new taxes.
“You are about to have your pockets picked and you will be told it’s for your own good,” said Rep. Rick Saccone, R-Elizabeth.
Rep. Madeleine Dean, a Democrat from Montgomery County, said she chose to focus on the positive aspects of the deal, including $200 million more for K-12 public education, $30 million more for early childhood education and $20 million for special education.
“Vote to pay for that which you have approved to spend,” she urged her colleagues. “Credit agencies are paying attention — and so are our constituents.”