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Final Pa. Budget Fails to Make Up Lost Ground

12:03 pm in Uncategorized by ThirdandState

By Sharon Ward, Third and State

The Pennsylvania Budget and Policy Center has released a full detailed analysis of the 2013-14 state budget plan spending $28.376 billion, roughly $645 million (or 2.3%) more than in the 2012-13 fiscal year.

Governor Tom Corbett signed the budget into law late in the evening of June 30, 2013. Overall, the plan is $64 million less than the Governor proposed in February, reflecting nearly $113 million in reduced spending for public school pensions and school employees’ Social Security payments along with a shift of $90 million in General Fund spending off budget to other funds.

2012-13 General Fund Summary
(in $ Millions)
2012-13 2013-14
Gov.
2013-14
Final
Change f/ 2012-13 %
Change
General Fund $27,731 $28,440 $28,376 +$645 2.3%

The plan includes a small increase to basic education funding, $122.5 million overall, with $30.2 million allocated to 21 school districts through a supplemental allocation, on top of the $90 million increase in the Governor’s proposal.

After many years of cuts, most programs received small increases in the Governor’s proposed budget, which remained in the final plan.

Changes to pension benefits for current employees, the cornerstone of the Governor’s original budget proposal, did not occur. The Legislature does not seem inclined to tamper with benefits for current employees. A proposal to move to a 401(k)-style retirement plan for new employees gained traction later in the session but was not adopted. This proposal may return in the fall.

Also abandoned was an $800 million education initiative to be funded through the sale of state liquor stores. While the privatization vs. modernization debate held center stage until the last week of the session, the school funding component was quickly abandoned and was not part of legislative proposals. Privatization is likely to be considered in the fall, as well.

For the first time in two years, there were no major cuts to services for vulnerable Pennsylvanians; however, a bill that would expand Medicaid coverage in 2014, a state option under the federal Affordable Care Act, was left undone. Legislation including the Medicaid expansion won bipartisan support in the Senate, but the House stripped out the expansion provision from the bill. When the bill returned to the Senate, a last ditch effort to restore the Medicaid expansion provision failed in a dramatic Senate committee vote on July 3.

Finally, a transportation funding package that would repair crumbling infrastructure and give a much needed shot in the arm to Pennsylvania’s flagging job growth failed to pass the House, despite overwhelming support in the Senate.

Get all the details from PBPC’s budget analysis.

PA Shouldn’t Miss a Real Opportunity to Close Loopholes

2:42 pm in Uncategorized by ThirdandState

By Michael Wood, Third and State

Pennsylvania Legislature

Pennsylvania Should close loopholes, argues Third & State

In the coming days, the Pennsylvania Legislature will be hammering out a deal to balance the 2013-14 state budget. One piece of the package will be a budget-related tax plan that may include a provision designed to close corporate tax loopholes.

Specifically, lawmakers are discussing the creation of a so-called “addback” rule. Such rules require corporations to add back interest and intangible expenses (such as for copyrights and patents) paid to related companies — often affiliates in Delaware or Nevada where the income is not taxed.

The House has already passed a budget-related tax plan (HB 440) that included the addback rule; however, the plan left much to be desired when it comes to effectively closing the Delaware loophole. Still, it was a first step — which for Pennsylvania is saying something.

The tax bill is now before the Senate, and apparently changes are being made to the addback rule to make it a bit more effective. The latest word is that addback language based on Virginia’s law, but weaker, will be replacing the language in HB 440. While a Virginia-lite version might be an upgrade from HB 440, it could easily be made stronger, as the Pennsylvania Budget and Policy Center explains in a new policy brief.

Legislators have an opportunity — and an obligation — do the right thing for Pennsylvanians and enact a strong addback law.  A weak rule will do little to stop corporations from sheltering profits in other states to avoid Pennsylvania taxes, and the commonwealth will continue to be shortchanged.

The state has been grappling with how to deal with corporate tax loopholes for more than a decade, but little progress has been made — until now. In 2004, Governor Ed Rendell’s business tax reform commission recommended adopting combined reporting, a more comprehensive approach to closing loopholes, in exchange for a number of tax changes long sought by the business community. Since then, it has largely been a one-way street. Businesses got the shift to single sales factor and increases in the net operating loss caps, along with significant cuts in the capital stock and franchise tax rate and increases in tax credit programs, while nothing has been done to close loopholes. The cost of business tax cuts has mounted to close to $3 billion annually. Pennsylvanians cannot afford to continue down this road.

Fewer state dollars have been available to pay for core services like public schools, health care, and infrastructure. This has resulted in property tax increases at the local level and needs to go unserved. As the saying goes, there is no such thing as a free lunch.

A recent poll found that a majority of Pennsylvanians want the state to restore more funding to public school classrooms. Closing loopholes effectively could help raise the money to restore those cuts.

After a decade of debate, the time is now for lawmakers to adopt a strong addback law. We have some tips for doing this at our website.
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Three New Tax Breaks Will Cost PA Schools and Services

7:31 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

private jet

Pennsylvania lawmakers are considering legislation that will give tax breaks to those who purchase private and corporate aircrafts

After making deep cuts to schools, early childhood education, and health and human services, Pennsylvania lawmakers are now considering new tax breaks that will largely benefit a small number of higher-income earners.

Last week, the Senate Finance Committee approved legislation that would create a new loophole in the state inheritance tax. It allows business owners to bequeath business assets tax-free to their heirs — an advantage unavailable to most hardworking Pennsylvanians who inherit a family home or car.

Over in the House, the Finance Committee voted 18-16 on Wednesday to approve a bill that would exempt sales tax on the purchase of private and corporate aircraft, jet parts, and aircraft maintenance and repair. A car or truck purchase will still be subject to sales tax, but those in the market for a private jet will get a tax break.

Finally, the House Commerce Committee is voting today on legislation that would reward investors in Pennsylvania start-up companies with a new tax credit that they can take even if they owe no state taxes. To qualify for the credit, the investor must have a net worth of $1 million or income above $200,000 a year.

Each bill, estimated to cost millions annually, could come up for votes before the House and Senate in the coming weeks. The Pennsylvania Budget and Policy Center has more on all three bills here.

These bills come on top of Governor Corbett’s proposal to enact a new round of tax cuts beginning in 2015 that will ultimately cost hundreds of millions from the state treasury and put profitable corporations first in line when future budgets are negotiated. It would be the latest in a series of costly special tax breaks over the decade that have undermined Pennsylvania’s ability to invest in schools and other vital services.

Pennsylvania can continue to fund special tax breaks like these or we can invest again in our children and our economic future — but increasingly we can’t do both. Unaccountable tax cuts undermine success in the classroom and growth in our communities, and they shift costs onto school districts, local governments, and property taxpayers.

Pennsylvania needs real tax reform that closes loopholes, ends special tax breaks, and levels the playing field for everyone. Only then can we enact a state budget that returns to tried-and-true investments in education and the services that promote long-term economic growth.

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State Tax Cuts Take a Bite Out of Pennsylvania’s Budget Pie

9:36 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

Advocates delivered half a pie to every Pennsylvania legislator Tuesday. Why half a pie?

To remind them that a decade of large tax cuts for businesses has left schools, health care services, and local communities with a smaller share of the state budget pie.

Tax cuts enacted since 1999 have drained close to $3 billion this year alone from state coffers. The cost of the tax cuts has more than tripled since 2002, with little to show for it. Too often, these tax cuts are put in place with very little accountability or obligation for companies to create jobs. In fact, Pennsylvania ranked 27th in job growth in 1999-2000 but fell to 34th in 2011-12.

Budget cuts fueled by large business tax cuts also pass the buck to school districts and local governments – and onto local taxpayers.

Governor Corbett is now proposing a new round of tax cuts for 2015 and beyond that will cost as much as an additional $1 billion. The proposal includes no plan to close tax loopholes that allow companies to hide profits and avoid paying their share of taxes.

Pennsylvania needs a budget that returns to tried-and-true investments in education and the public infrastructure that promotes long-term economic growth. After a long economic downturn, that is the path to more jobs, stronger communities, and a brighter future for our children.

We can fund corporate tax cuts or we can fund our children’s schools, but increasingly we can’t do both. Giving larger slices of the pie to profitable corporations means less money in the classroom, fewer early childhood programs, and less support for local services.

Pennsylvania needs real tax reform that levels the playing field for businesses that play by the rules, and stops giving away dollars that are essential to helping our children and families succeed. Only then will we be able to invest in a world-class public education and the community assets that build a stronger economy.

Photo by Mr. T in DC released under Creative Commons License

Pennsylvania Tax Giveaways and an Island in the Sun

9:01 am in Uncategorized by ThirdandState

This is Oracle's headquarters.

By Jamar Thrasher, Third and State

A few weeks ago, the Pennsylvania General Assembly fast-tracked a bill in the waning days of the legislative session to allow certain private companies to keep most of the state income taxes of new employees. News reports to follow indicated the new tax giveaway was designed to lure California-based software firm Oracle to State College.

Well, it turns out the CEO of Oracle, which will benefit from the largess of Pennsylvania taxpayers, recently bought his very own Hawaiian island, as CNN reported back in June.

Oracle CEO Larry Ellison, the third richest man in the U.S., purchased about 98% of Lana’i, the sixth largest of the Hawaiian islands. Forbes reported that the deal was rumored to be worth $500 million.

As CNN tells us:

The island includes two luxury resorts, two golf courses, two club houses and 88,000 acres of land, according to a document filed with the Public Utilities Commission.

Which bring us back to Pennsylvania, where Governor Corbett recently signed House Bill 2626, allowing qualifying companies that create at least 250 new jobs within five years to pocket 95% of the personal income taxes paid by the new employees.

Legislative sources told The Philadelphia Inquirer that “the bill was designed to lure California-based Oracle, the world’s third-largest software maker with $37 billion in revenue last year, to open a facility in the Penn State region, which would provide a pool of highly educated job seekers.”

We’ve already blogged about why this bill is a bad deal for Pennsylvanians, but Larry Ellison’s island provides us with yet another reason.

Oracle should not be pocketing the withholding taxes of new employees in State College, especially at a time when the state is cutting investments in schools and underfunding infrastructure.

And especially when the boss is doing well enough to afford an island in the sun.

Photo by Alamagordo under Creative Commons license.

Not Exactly a Mahogany-paneled Corporate Boardroom

10:42 am in Uncategorized by ThirdandState

By Kate Atkins, Third and State

Montgomery County Budget ForumA hundred days after passage of the state budget, it is too soon to fully assess the impact of cuts to human services, Montgomery County’s administrator for behavioral health and developmental disabilities told a group of 50 consumers and social service providers at a budget forum last week.

Still, Administrator Eric Goldstein told the forum at the Norristown Recovery and Education Center that he has concerns about the state’s move toward block grants for human services funding. Unlike Bucks, Chester, and Delaware counties, Montgomery County did not apply to be part of this year’s new pilot block grant for the Human Services Development Fund.

Eric Goldstein was joined by speaker after speaker who testified to the importance of the modest dollars invested in prevention and community supports for people struggling with mental illness or substance abuse.

One speaker, Troy, a solidly built man with a confident manner and a winning smile, said people call him a “success story,” but he remembered the days when he struggled with drug addiction. He described how he would walk into the Norristown Center and feel a lift from the friendly and familiar faces of the staff, who would ask him how he was doing.

“I’m looking for a job,” he would tell them.

“Really?” they would reply.

“No,” he would admit. “Not really.”

Through the Center, which is run by the Mental Health Association of Southeastern Pennsylvania, Troy built up his self-esteem and was able to find work counseling others.

In the grand scheme of things, it doesn’t cost a lot of money to maintain a drop-in center in Norristown. Eric Goldstein, gesturing to the neatly-painted cinder block walls and freshly waxed linoleum floor, pointed out that it wasn’t exactly a mahogany-paneled corporate boardroom. But the cost of not having local community resources like this one would be enormous.

Another speaker began by saying she had not wanted to speak, but realized she had to. She was an elementary school teacher, she began, from a family of ministers, educators, and lawyers. In her late thirties, she went through a difficult period after the death of her mother and was diagnosed with bipolar disorder. She was not able to keep her job. Her family did not believe the diagnosis, she told us, and shut their doors to her.

“Strangers had to take me in,” she said, tears in her eyes. “Strangers.”

She is now living in the Halfway There shelter as she puts her life back together.

Eric Goldstein closed the evening by reminding the crowd that we are in this together. The line, he said, between people with mental illness and the rest of us is very thin.

Representative Matt Bradford also spoke, reminding us that the state is facing hard economic times but does have choices in how to respond to the challenging fiscal reality. He cited the Legislature’s decision to give up to $1.6 billion in tax credits to Shell Oil at the same time the state is cutting funding for human services.

Get more information on how you can advocate with Better Choices for Pennsylvania for supports for people struggling with mental illness and substance abuse.

A Rare Victory In The Endless Fight Against Corporate Welfare

1:52 pm in Uncategorized by ThirdandState

By Mark Price, Third and State

In a rare victory against corporate welfare in Pennsylvania, Ahold USA has withdrawn its request for property tax breaks for a meat-packaging facility it is building in Lower Allen Township, Cumberland County.

As Michael Wood explained before the request was withdrawn:

Ahold is the poster child for a system that is costly, lacks real accountability and leaves the taxpayers paying more…

Paying a profitable corporation for something it was already planning to do makes no sense at all…

Lower Allen Twp. officials decided wisely to put the Ahold tax break on hold. It’s time more public officials followed their lead to stop playing the economic development game and direct tax dollars where they should be spent: on schools, public safety and other vital services. 

In some more mixed news, The Associated Press reports that both the House and Senate have approved House Bill 2626, which allows certain companies to keep new employees’ personal income tax withholdings.

The Pennsylvania Budget and Policy Center came out last week with a Top 10 List of concerns with this plan, laying the foundation for some improvements to the bill made in the Senate this week. They include capping the cost of the program at $5 million per year (the original version could have cost hundreds of millions), and requiring that a qualifying company create at least 250 jobs within five years (100 within the first two years).

The bill still reflects a flawed approach to economic development, but the Senate’s more cautious approach is much better than the initial House version.

Sen. John Blake, D-Lackawanna, said the bill “crosses a line” in smart economic development by diverting tax revenue to a handful of private companies, and it duplicates existing programs in law that offer tax credits to companies that hire people.

The bill, he said, is “essentially an employee paying their boss for the privilege of having a job.”

As Greg LeRoy and Leigh McIlvaine of Good Jobs First explained in an op-ed this week, the “pay your boss to work” approach to economic development is deeply problematic.

It’s one thing to reduce a company’s income tax, property tax or sales tax in hopes of jobs. It’s another to give companies other people’s money.

The name and idea are imported from Kansas, where they have caused enormous controversy. HB 2626 is modeled on the identically named “Promoting Employment Across Kansas,” or PEAK program, which was enacted in 2009.

In the wealthy Kansas City suburb of Overland Park, MIQ Logistics and Dex One Service Inc. — two of the city’s largest employers — have so far received a total of $730,000 of their workers’ taxes through PEAK.

Former Overland Park Chamber of Commerce executive Vern Squier, who worked with Kansas lawmakers to enact PEAK, is now CEO of the Chamber of Business and Industry of Centre County (State College), where he is pushing the copycat HB 2626.

HB 2626’s sponsors say it would bring new jobs to the state. But PEAK in Kansas cannot be called a success. It is plagued by transparency problems and is fueling a bitter zero-sum jobs war with Missouri in the Kansas City metro area.

In the last three years, media-reported deals alone there have moved about 1,900 jobs from Missouri to Kansas and about 2,200 from Kansas to Missouri. Most of the moves were subsidized, often with the personal income taxes of workers (Missouri has a similar personal income tax giveaway).

The costly Kansas City-area jobs war has gotten so bad that 17 prominent business leaders there issued a public appeal last year to Kansas Gov. Sam Brownback and Missouri Gov. Jay Nixon, saying: “At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue while the other forgives it.

“The states are being pitted against each other and the only real winner is the business who is ‘incentive shopping’ to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.”

Pa. Budget: Failing to Invest in a Stronger State Economy

7:38 am in Uncategorized by ThirdandState

By Chris Lilienthal, Third and State

Despite ending the 2011-12 fiscal year with a $649 million fund balance, Pennsylvania fails to make the investments essential to building a strong economy or to reverse a recent trend where job growth in the commonwealth has lagged behind other states.

So concludes the Pennsylvania Budget and Policy Center analysis of the enacted 2012-13 state budget, which was released Friday.

In the final budget, the General Assembly restores some of the cuts proposed by Governor Tom Corbett, while leaving intact a 10% cut to human services and deep cuts to public schools and higher education made in 2011. The budget continues to shift costs to local governments and taxpayers, while adding new tax breaks for businesses.

The spending plan, at $27.656 billion, is $517 million more than the Governor’s February proposal but remains below budgeted 2008-09 levels, despite four years of recession-driven increases in demand for services. The largest cut in this budget comes from the elimination of the General Assistance Program, which provides a temporary monthly benefit to 68,887 Pennsylvanians who are sick, disabled or escaping an abuser. It ends next month

Cuts to education enacted last year, meanwhile, have diminished the quality of instruction in our poorest school districts and resulted in the loss of 14,000 jobs in 2011.

The budget squeezes money out of human services, education and General Assistance at the same time it expands and creates new tax credits and continues the ongoing phase-out of the capital stock and franchise tax. This is part of a decade-long pattern that will see the commonwealth spending $2.4 billion on corporate tax breaks in the new budget. That amount has tripled over the last 10 years and does not count the hundreds of millions of dollars lost annually to corporate tax loopholes. Most of these tax breaks primarily benefit the largest corporations and come with no commitment to create jobs.

As the economy continues to recover, Pennsylvania will need to make public investments to build a strong economy and make Pennsylvania a place where families will want to live. This budget takes a small step in that direction, but falls well short of where we need to be.

Check out the center’s budget analysis for more.

PA Starts New Fiscal Year with $400 Million in the Bank

1:12 pm in Uncategorized by ThirdandState

By Michael Wood, Third and State

After a less than stellar May, General Fund tax collections bounced back strongly in June — exceeding estimate by $170 million, or 6.5%. This narrowed the 2011-12 revenue shortfall to $163 million, or less than 1% of total estimated collections for the year.

As a result, the state ended the year in a much better fiscal situation than projected back in February, when Governor Tom Corbett released his budget plan. Counting the dollars the state had in the bank, Pennsylvania actually started the fiscal year with a $400 million fund balance.

The recently enacted budget acknowledged this but only to a point. The Legislature increased General Fund spending in 2012-13 by $655 million from the Governor’s  proposal — restoring funding in a number of important areas: higher education, accountability block grants, and half of the 20% cut proposed for county services included in the now-rejected Human Services Development Block Grant. Lawmakers also found funding for another round of business tax breaks.

However, June collections indicate more could have been done — for General Assistance recipients, environmental programs, and child care. Lawmakers also passed on setting aside any of the additional revenue in the Rainy Day Fund.

Click here for the Tale of the Tape.

The revenue surplus in June was led by corporate tax collections — coming in $180 million higher than the monthly target, or 38%. After falling short of estimates for seven of the first eight months of the fiscal year, corporate taxes ended June with a small surplus of $39 million, or 0.8%.

Personal income tax collections were also surpassed estimate in June by $26 million, or 2.7%. For the fiscal year, PIT collections were $199 million, or 1.8%, below expectations — not a surprise given the slower-than-expected decrease in the unemployment rate and general sluggishness in the economy.

Sales tax receipts were $46 million, or 5.5%, lower than expected in June. This pushed yearly sales tax collections slightly below estimate ($16 million, or 0.2%).

All major categories of taxes grew in 2011-12. In total, they exceeded 2010-11 levels by $688 million, or 2.6%.

The Human Cost of Eliminating General Assistance in Pennsylvania

1:37 pm in Uncategorized by ThirdandState

By Kate Atkins, Third and State

Since the Great Depression, Pennsylvania has had a General Assistance (GA) program — a small cash benefit that serves as a bridge to self-sufficiency for the temporarily disabled and for victims of domestic violence and addicts seeking help to turn their lives around.

A dollar bill cut in half.

Photo: Images of Money / Flickr

Since the Great Depression. Until late last month when state lawmakers adopted a new budget.

That budget will end Pennsylvania’s modest benefit for 68,000 people, effective August 1. At $205 per month, nobody was getting rich from the program. Here is a sample of who is using General Assistance and why:

* A disabled military veteran in Lancaster County, who applied for General Assistance to get him through until his Social Security disability benefits were approved.

A waitress in her 50s who was diagnosed with breast cancer and used General Assistance when she could not work as she was receiving chemotherapy and radiation treatment. After about nine months, she was able to return to work.

Good Samaritans who are caring for children not related to them — perhaps children of a close friend of neighbor. Many of these children are now likely to end up in the foster care system.

A very focused group of young women I saw at a recent rally in Delaware County, who chanted: “Pennsylvania, we need GA. We’re in treatment, we need to stay!”

A former addict whose recovery was aided by General Assistance who is now employed in a job that allows him to pay taxes, support his daughter, and help others struggling with addiction.

“I didn’t need a couple days of rehab; I needed long-term care,” recalled Jake Fleming, care manager for NorthEast Treatment Centers and a former addict. “General assistance saved my life.”

The state ended the year with a $649 million surplus, more than enough to preserve the General Assistance program. Instead, the legislature chose to end the program, likely increasing the state’s overall spending as people facing very challenging life circumstances end up in emergency rooms, prisons, and inpatient mental health facilities.

As the changes go into effect August 1, this promises to be a hard summer for tens of thousands of people.