Pennsylvania’s House of Representatives on Wednesday afternoon rejected Gov. Tom Wolf’s tax package, which was intended to raise $1.4 billion for fiscal 2016 and $2.4 billion the following year.
The commonwealth’s budget impasse is in its fourth month. Only Pennsylvania and Illinois have yet to sign a fiscal 2016 budget.
The House defeated the plan, introduced as an amendment to House Bill 283, by a 127-73 vote. Wolf is a Democrat while Republicans control both legislative branches.
Wolf wanted to increase the personal income tax by 16%, to 3.57% from 3.07%, and impose a 3.5% natural gas extraction tax plus 4.7 cents per thousand cubic feet. The plan would also have cut property taxes for senior citizens.
Both sides referenced the state’s deteriorating credit during day-long debate. All three major bond rating agencies downgraded Pennsylvania last year, citing budget imbalance 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.
“Those bond downgrades are because of our broken pension system. It needs reform,” said Rep. Warren Kampf, R-Paoli.
Wolf on Tuesday accused Republicans of “smoke and mirrors” budgeting and projected a state budget shortfall next year of $2 billion to $3.5 billion, which could prompt further downgrades.
Also along party lines, Republicans opposed the Marcellus Shale drilling tax, saying that the current impact fee, which would have remained under Wolf’s proposal, is already a form of taxation. They said it could cause unemployment in a natural gas industry that’s hurting, and could trigger higher utility rates for poor and working people.
Rep. Mike Sturla, D-Lancaster, said Republicans “should be honest with people and admit they want to gut human services and schools.”
School districts, social service agencies and vendors have felt the budget pinch. Some had to borrow to continue operating. All three bond rating agencies are studying the effects of further delays in state aid.
“We believe [such delays] could stress liquidity and potentially affect certain districts' ability to pay expenses on a timely basis,” Standard & Poor’s said. “School districts that receive a higher degree of state aid are more likely to be at risk than those with a lower dependence on state aid.
“Likewise, school districts that have lower cash and available fund balances are also more likely to be at a higher level of credit risk than those with higher cash and available fund balances.”