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First War, Then Peace

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Gov. Corbett presented his budget for the next fiscal year to a joint session of the Pennsylvania General Assembly with great pomp and fanfare.  The budget, which totals $28.4 billion, is enumerated in excruciating detail in a budget book equal in thickness to War and Peace.

In reality, though, it doesn't amount to a hill of beans.

We may not recognize all the grand programs and great ideas set forth by Corbett once the legislature gets through reworking his budget plan.  And it will rework it.

Although both the state House and Senate are controlled by Republicans -- who nominally follow their Republican governor -- they have shown an independent streak during Corbett's first two years in office, rearranging numbers and priorities at will. 

Why? Partly because they can.  The legislature is a co-equal branch of government and often reshapes a governor's priorities to suit themselves.

Partly because, frankly, the disagree with the governor's goals. Corbett, for instance, tried to whack hard at state aid to state colleges and universities.  The legislature refused.

Corbett wanted vouchers for non-public schools.  He didn't get them. 

I'm not going to say Republicans are in rebellion against their governor, but it sometimes looks like that.

Let's take the budget case by case and match it against the governor's latest proposals.


The Motor License Fund.  This is likely to be one area where the legislature and the governor agree -- or come close to it.  The legislature has been pressing for several years to find a way to bail out the Motor License Fund, which pays for repairs on state roads and bridges.  It is Corbett who has dragged his feet.  Since any such program requires an increase in either gas taxes or license fees -- or perhaps both -- it ran against his pledge not to raise taxes.

On Tuesday, the governor found a way around that by proposing cutting the retail gas tax from 12 to 10 cents a gallon.  He counteracted that cut by proposing a change in the formula on another fuel tax that is levied on wholesale suppliers.  Right now, it totals 19 cents a gallon (all of which is passed onto consumers).  But it is determined by a formula that multiples a percentage tax rate by an outdated $1.25 a gallon.

By lifting the cap and letting this wholesale tax float to the current market price of gas, it will generate more revenue -- about $250 million next year.

The legislature is likely to go along with this sleight of hand (it's not a tax increase, it's a formula change).  But, pro-PennDOT House and Senate members may not go along with cutting the retail gas tax, too.  Some key legislators feel Corbett's plan shortchanges the Motor License Fund and may be inclined to keep the 12 cents a gallon retail tax in place as well as change the formula.

Odds it will pass:  85%

Sale of the LCB. The governor wants to get the state out of the business of selling liquor and instead have private business do it -- if they are willing to pay steep licensing fees. Corbett's goal is to make $1 billion off the sale of the state's wholesale and retail liquor operations, money he has proposed to apply to block grants for specific educational programs.  Traditionally, plans to sell the LCB have been blocked by an unlikely coalition of urban Democrats (who want to keep those jobs as state jobs) and rural Republicans, who want to control liquor sales.  A new concern among rural legislators is that the licenses are so pricey rural counties that now have just one or two state stores may end up with no retail outlets selling liquor.  My take is that while the Corbett plan may fly in the House it will be stopped in the Senate.

Odds it will pass: 35%

Pension Reform. Corbett wants to lower the state's obligation to the state employee and state teacher funds by changing the formula under which current employees determine their pension. Currently, pensions are determined by a formula that takes your average salary times years of service times a multiplier.  For years, the multiplier was 2 percent.  In 2001, in a fit of generosity, the legislature changed it to 2.5 percent.  It amounted to a 20 percent increase in pensions. Now, Corbett wants to lower the multiplier back to 2 percent going forward.  For example, if you are a 10-year state employee, you will get the 2.5 percent for the last 10 years, but the multiplier will be reduced to 2 percent going forward.

The governor also wants to force new state employees into a 401K plan, which is much cheaper -- in the long run -- than the current defined benefit plan the state and school districts have.

This idea is going to be a tough sell.  Democrats are united in opposition.  Republicans are skeptical on a couple of levels: they are not sure of the legality of changing pension benefits in midstream; they do not like the idea of such an abrupt change to a 401k system. (If those new employees stop paying to the existing pension plans it may hurt their financial viability.)

An unspoken but important factor: Legislators come under the state employees plan and are being asked, in effect, to lower their own pensions if they embrace the Corbett proposal.

Odds it will pass: 45%

Education Funding. The governor made much ado about increasing funding for basic education, but it was only a paltry amount -- about $90 million statewide or a 1.7 percent increase in the basic education subsidy.  There will be great pressure on the legislature, emanating from school districts at home, to do better.  This year, Corbett did not touch the budgets of the state-owned and state-related universities, but he gave them zero increase in funding.  These schools have many allies in the legislature and may press for more.

Odds educating funding will be increased: 65%

Business Tax Cuts. Corbett has irked legislators by tying pension reform to budget increases.  His people have said, in effect, if you don't pass the pension reforms we proposed and we cannot realize those savings, then we are going to take it out of the budgets of other departments.  Education has been mentioned.  At the same time, Corbett is pressing on with business tax reductions.  He has a plan to reduce the Corporate Net Income Tax from 9.99 percent to 6.99 percent, but that is not due to begin happening until 2015.  He is going ahead with a planned reduction in the Capital Stock and Franchise Tax, which will reduce the yield from that business tax from $604 million to $243 million in the next fiscal year.  If the legislature doesn't bite on pension reform, it may be inclined to make up for it by (a) shifting funds from one area of government to another and (b) easing up on the schedule of business tax reductions so it has more money at hand.

Odds the planned cuts will be reduced or postponed: 55%

There is already talk in the legislature of postponing debate on the LCB sale until later in the session -- in other words unlinking it from the budget.  Ditto for the pension proposals.

The concern was that debate on these issues may prevent the legislature from meeting its June 30 deadline for passing a budget.  One way to avoid that is to postpone the most controversial items until later -- when the governor has less leverage.
To sum up, there is a likely to be more war over the budget before there is peace.

 

-- Tom Ferrick

 

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