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Closing in on a state budget

| Saturday, April 15, 2017, 9:00 p.m.
Rep. Mike Turzai, R-Allegheny, left, and Gov. Tom Wolf shake hands before Wolf delivered his budget address for the 2017-18 fiscal year. (AP Photo/Matt Rourke)
Rep. Mike Turzai, R-Allegheny, left, and Gov. Tom Wolf shake hands before Wolf delivered his budget address for the 2017-18 fiscal year. (AP Photo/Matt Rourke)

It will never rival the Super Bowl, the World Series or even March Madness in popularity. But Pennsylvania's budget battle is underway and — unlike those sporting events — it has a real-world impact on every taxpayer.

In February Gov. Tom Wolf released his budget proposal. Predictably, it called for increased spending and higher taxes — although far less of both than in past years. This month the House Appropriations Committee, where the budgeting process actually begins, released its own budget that holds the line on taxes while actually slightly reducing overall general fund spending in the coming year.

Harrisburg politicians are operating on the theory that the state has a $1.4 billion “structural budget deficit” and revenue from the current fiscal year is expected to fall about $700 million short of projections, so the new budget begins with a significant shortfall.

Early in the process, Wolf took any broad-based tax hikes, meaning the personal income tax or sales tax, off the table. He proposed a severance tax on Marcellus shale drillers and advocates various targeted tax hikes — a strategy that was used last year and failed, resulting in overly optimistic revenue projections.

The House Appropriations Committee has countered with a Republican plan dubbed ReinventPA that includes no new taxes.

Like the governor's plan, the Republican budget increases spending on K-12 education. But unlike Wolf's proposal, it funds that increase by making cuts to administrative spending across all three branches of state government.

The GOP plan utilizes a mix of reforms to the state's liquor system, expansion and reforms of gambling, tax credit reductions and special fund transfers in addition to administrative cuts to bring the budget into balance.

It is unrealistic to suggest any significant progress can be made on the biggest cost driver in state government — the growing unfunded liability in the state's public employee pension funds — in time to impact the 2017-18 budget, which must be adopted by the end of June. But the ReinventPA plan does begin the process of moving forward on pension reform.

The bottom line: Wolf's budget calls for an overall spending increase of about $500 million; the GOP plan would reduce general fund spending by $245 million. That puts the two sides much closer together than they were at this stage during the first two years of the Wolf administration.

Optimism is rising that a budget deal might actually be struck close to the June 30 deadline. The GOP has agreed to some of the governor's spending priorities but will fight hard against any tax hikes.

There are still areas of disagreement. But 2018 is a gubernatorial election year. All members of the state House and half of the Senate will be up for election. No one wants a repeat of the lengthy budget battle that two years ago inflicted financial pain on nonprofits, school districts and others across Penn's Wood.

That is why Wolf has abandoned the demands for dramatic tax-and-spending increases that were the hallmark of his first two budget proposals. Thus the budget differences between the two sides are far less this year than in the past. But the big fiscal challenges facing the commonwealth remain, leaving much to be done even after the new budget is adopted.

Lowman Henry is chairman and CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.

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