Are we there yet?

HARRISBURG (Nov. 9) - Things are still very tentative – and very fragile at the moment – with a lot of details yet to be worked out, but the first signs of what all involved are calling “a broad framework” for a potential 2015-16 state budget has begun to emerge in the state Capitol.

Late Monday, the various players in the ongoing budget drama confirmed reports there’s been some amount of agreement on additional education spending for 2015-16, as well as some revenue to help pay for it.

It appears as though all parties have “generally” agreed to an additional $350 million for basic education, an additional $50 million for special education and a 5-percent increase in funding for higher education. 

In a late Monday evening conversation with Capitolwire, House GOP spokesman Steve Miskin was hesitant to acknowledge agreement on any numbers, but indicated those numbers were “generally correct,” while heavily stressing, “This is all just a framework.” 

There had also been some talk from Gov. Tom Wolf’s administration about an additional $50 million for pre-K funding, but Senate Republican spokeswoman Jenn Kocher told Capitolwire the Senate GOP has “not come to any agreement on pre-K.”

Wolf spokesman Jeff Sheridan sent out an email, and later told Capitol reporters, the framework also included additional education funding for Fiscal Year 2016-17, including $200 million more for basic education, $50 million for special education and $50 million for pre-K.

Kocher said no such agreement has been reached for anything beyond the 2015-16 framework’s funding levels. She added Senate GOP leadership late Monday afternoon warned the Wolf administration of any claims to the contrary, suggesting that could scuttle the entire fledgling framework. 

About FY2016-17 education funding, Miskin said: “Right now we just want to get his part [FY2015-16] done, and then we’ll look at what else we have to do ... but we’re not there yet.”

House GOP Majority Leader Dave Reed, R-Indiana, and House Appropriations Committee Majority Chairman Bill Adolph, R-Delaware, told state Capitol reporters late Monday afternoon there’s a lot of work to do before this is a budget deal.

“There's a lot of details to be worked out," said Reed.

But when it’s all said and done, there will have to be agreement on everything included in the framework, or there won’t be any deal, said Miskin and Kocher.

“If one thing breaks apart, the whole deal could fall apart,” said Miskin.

“It’s something where we need everything to be agreed to or there’s nothing,” Kocher said.

Included in those details, Reed said there will be additional property tax relief, although how that, as well as the additional education funding, is distributed has yet to be determined. And, with regard to property tax relief, Reed suggested there might be caps placed on how much school districts can raise property taxes in the future.

Also to be worked out is how to pay for the additional education spending and property tax relief, as well as close the current $1.3 billion structural deficit and address future cost-to-carry issues, such as state pension contributions.

When asked about funding, Sheridan would only say, “How this is all paid for, the details are being worked out.” 

But Reed and others with knowledge of the continuing budget conversations said plenty of potential revenue sources remain on the table and under discussion, including an expansion of gambling (such as internet gaming, slots at off-track betting locations and limited slots licenses for airports), a cigarette tax hike, a new tax on e-cigarettes and the privatization of the state's wine and liquor system. However, a hike in the current tax on natural gas is not part of the discussion “at this time,” said Reed.

And with regard to liquor privatization, Reed said it will have to be the first $250 million in recurring revenues to help pay for the additional education funding.

However, other revenues will be needed to make the plan work, and it appears, as reported previously by the Associated Press, the roughly $600 million in tax revenue generated annually by the state’s slot machines for property tax relief will be a part of that, as well as a hike and expansion of the state’s sales tax.

When asked about the sales tax, Reed did not commit to anything, other than to say it “certainly has been part of the discussion and is certainly a path that folks have looked at." 

Kocher said the sales tax discussion is focused on she characterized as “dollar for dollar” property tax relief.

According to Kocher, currently under consideration in this tentative framework is a total of $2 billion in new revenue that would be generated by a sales tax hike and expansion – on two currently exempt transactions, digital downloads and online hotel reservations. Reed had mentioned the potential to raise the tax by 1.25 percent from its current level (throughout most of the state) of 6 percent, which Miskin said was one option but agreed the ultimate goal is to generate $2 billion in new revenue.

But here’s where the framework gets more interesting.

Of that $2 billion, which would all be devoted to “dollar for dollar” property tax relief, $600 million would be used to provide the property tax relief currently funded by slots-generated tax revenue. That’s because the $600 million in slots tax revenue would be moved into a restricted account earmarked to pay for the state’s public pension contributions. That diversion of slot funding would then free up $600 million in General Fund revenue (that would have otherwise been necessary to pay for pensions) to be used to help pay for the additional education funding as well as budget needs, including closing the structural deficit.

The Commonwealth Foundation, a conservative-leaning Harrisburg-based think tank, on Monday afternoon criticized the proposal as a “backdoor $600 million tax increase,” as it would raise taxes by $2 billion, but only deliver an additional $1.4 billion in property tax relief – something of which legislative Republicans were repeatedly critical when proposed by Wolf in his state budget.

“Pennsylvanians have had their fill of shell-game gimmickry during the last four months of budget negotiations,” said Matthew Brouillette, president and CEO of the Commonwealth Foundation, in a press release. “Rather than concoct creative ways to disguise tax-increasing deals, lawmakers and the governor should seek common ground that spares taxpayers—who already pay the 10th-highest state and local taxes in the nation—from an even larger burden.”

But according to sources within at least the state House of Representatives’ two legislative caucuses, the framework – such as it is currently – was met with optimism, though they admitted there are still many lingering questions about which revenue generators will be part of the final product, if there is one.

“I think if the current spirit continues, where all four caucuses and the governor are working hard to get this to a conclusion, Thanksgiving is possible,” said Bill Patton, House Democratic Caucus spokesman. “It's certainly not a sure thing. Democrats still have a lot of questions and our votes are not guaranteed yet.”

Patton said how school funding and property tax relief is distributed is critical toward getting support from the caucus.

“We're not closing any doors,” he said. “We're encouraged by what's happened in the last week and a half, and hope that progress will continue.”

Miskin and other House GOP sources said if all goes well with the continued development of the framework – which remains a fairly big “if” – the plan is to begin considering a General Appropriations bill next Tuesday, with the goal of getting all budget-related bills – and sources said a final budget package could include 30 or 40 bills – to Wolf’s desk by Thanksgiving.