Wolf Hopes Tax Package Will End Pennsylvania Budget Impasse

Looking to break a nearly 100-day budget stalemate, Pennsylvania Gov. Tom Wolf presented a tax package to state lawmakers Tuesday that would increase the state's personal income tax by a half a percentage point and add a tax on natural gas drilling.

First-year governor Wolf, a Democrat, said the package would raise more than $1.4 billion for fiscal 2016, which began July 1, and more than $2.4 billion next year. It would close a budget deficit and provide roughly $400 million annually for education, he said.

Under Wolf's proposal, the personal income tax would increase from 3.07% to 3.57%; the state would impose a 3.5% Marcellus Shale natural gas extraction tax, plus 4.7 cents per thousand cubic feet.

The latter tax would supplement the current impact fee for extraction in the shale gas fields.

The plan would also cut property taxes for senior citizens. He backed off his earlier call to hike the sales tax from 6% to 6.6%.

The House could vote on it during Wednesday's session, scheduled to start at 9 a.m.

Republicans control both branches of the legislature.

The GOP holds a 119-84 advantage in the House, so at least 18 Republicans would have to cross the aisle.

Pennsylvania and Illinois are the two states yet to pass a fiscal 2016 budget.

If the state does nothing, Pennsylvania could face a shortfall next year of $2 billion to $3.5 billion, Wolf told reporters Monday.

"We're going to have to make cuts, the likes of which we have not made for a long time - 10 years, in fact, when it comes to education," he said.

"We're going to have additional credit downgrades because the credit agencies are going to say: 'You're still using smoke and mirrors so that 83 basis-point premium you're now paying on your debt because you're not a triple-A rated state, it's going to go even higher.'" Wolf said. "And so is our debt because we're going to have to borrow money to fund our deficit."

All three major bond rating agencies last year downgraded the commonwealth, citing budget and an unfunded pension liability estimated at $53 billion. Moody's Investors Service rates Pennsylvania's general obligation bonds Aa3, while Fitch Ratings and Standard & Poor's rate them AA-minus.

Wolf vetoed a $30 billion spending plan in late June and an $11.2 stopgap budget early last week.

Tax changes, school funding, pension overhaul and liquor store privatization are the major budgetary dividing points.

"Tom Wolf keeps breaking his campaign promises at the expense of Pennsylvania families," said Republican communications director Megan Sweeney. "On the campaign trail, Tom Wolf to promised not to raise or expand the state sales tax, only to spend his first nine months in office calling for a 10% hike and new taxes on diapers, day care, and even nursing homes."

School districts, social service agencies and vendors have felt the budget pinch.

Some had to borrow to continue operating.

"The continuing budget impasse for Illinois and Pennsylvania are playing out negatively for education in these states," said Wells Fargo Securities associate Roy Eappen. "The timing of state revenues is particularly challenging for education, as K-12 education and higher education have already started the new academic year."

Pennsylvania Auditor Eugene DePasquale reported interest and fees related to emergency borrowing has already cost 17 school districts and two intermediate units a combined $11.2 million. Many districts are drawing down reserve funds, he said.

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