House Republicans on Wednesday passed what they called “The Putting People First Budget,” a budget-balancing plan that provides $2.3 billion in funding to close the $2.2 billion accumulated budget deficit facing the commonwealth in FY 2017-2018, by a vote of 103 to 91.
According to the details of the plan, the revenue scheme will get money from the following sources: $20 million from legislative reserve accounts; $1 billion by selling a portion of the Tobacco Settlement Fund’s Master Settlement Agreement funding stream over a 10-year period; $630.5 million in special fund transfers; $400 million in multi-year agency lapsed funds; $225 million in gaming reform proceeds; $50 million from additional Pennsylvania Liquor Control Board license transfers to privately owned “agency stores” that will serve areas in which state stores are losing money; and a $200 million transfer from the Joint Underwriters Association Fund.
Lawmakers are also counting on $200,000 from the Nationwide security data breach settlement and $8.3 million from the Mylan Pharmaceuticals settlement to be put into the General Fund.
The move from the Tobacco Settlement Fund will allow SERS/PSERS to have a right of first refusal on the deal that would require them to provide a combined $1 billion upfront in exchange for roughly one-third of the future money coming in to Pennsylvania from the Master Settlement Agreement. This would provide the two pension funds with a dedicated funding source that would ultimately provide them with $1.5 billion after the 10-year period.
House Republican leadership said the proposal is necessary as a reflection of their priorities given the lack of support in the House for the specifics of the Senate-passed revenue plan and, as they allege, disengagement by House Democrats on trying to find a bipartisan solution.
“We’ve basically been told by the other parties that until we show we have the votes for a revenue package, that nobody is negotiating. Today, we showed we have a majority of the House for the proposal we sent over,” said House Majority Leader Dave Reed (R-Indiana).
“It’s a proposal that doesn’t have random tax increases and borrowing. Hopefully, folks will be mindful of that proposal and we won’t be doing just random personal tax increases or taxes on electricity, telecom and home-heating bills. Hopefully, that will send a message to the next round of negotiations and we can actually get to that sooner or later and won’t have to wait for the other parties to come to the table for another two months. We want to get this done. That’s why we went through this process today.”
Whether the plan actually had enough votes to make it through the Legislature was an open question throughout most of the day.
Some rank-and-file members in the House said that the entire plan is a good move for the commonwealth since it balances the state’s books largely on available resources without the need to go back to taxpayers to foot the bill.
“I think the fact that we are doing these things and not taxing the energy users in the state of Pennsylvania and landline and cell phone users – and using what we got – is a really positive move,” said Rep. Mike Tobash (R-Schuylkill), who was one of the crafters of the previously debated “The Taxpayers’ Budget.”
Not all House Republicans were thrilled with the new plan and, as the day progressed, it became apparent that the Southeastern Republican members – a group that numbers around 30 from Philadelphia and its surrounding ring counties – would be important in determining whether or not the proposal had a chance at passing.
“I’ve got concerns with it,” said Rep. Gene DiGirolamo (R-Bucks). “The first concern I’ve got, most importantly, is where is the Marcellus shale" severance tax. "We’re asked to put this vote up with no promise or commitment that we are going to do Marcellus shale … I could support some of this if we’ve got agreement on recurring revenue, but I’ve got questions about what these transfers would do.”
Others saw the plan and supported its passage as a necessary step to continue discussions with the Senate on what will eventually be the final revenue package.
“It’s a plan that allows us to go into negotiations with the Senate on their plan, so we’re probably going to end up somewhere in the middle,” said Rep. Stephen Barrar (R-Delaware). “I don’t know where else we can go with this.”
That said, Barrar, like DiGirolamo, said leadership allowing a vote on a severance tax proposal could sweeten the pot to get more moderate Republicans on board, despite the plan’s less appetizing provisions.
“We absolutely would like to see a severance tax as part of it,” he said. “It was discussed. The people in the southeast would like to see it.”
Ultimately, roughly half of the southeastern Republican delegation voted against the proposal along with two other Republican members: Rep. Eli Evankovich (R-Westmoreland) and Rep. Tom Mehaffie (R-Dauphin).
Aside from rebelling Republicans, Democrats were uniformly opposed to the plan due to its lack of recurring revenue, raids of environmental funds, effects on mass transit and provisions related to the Tobacco Settlement Fund money.
“It’s hard for me to believe we are suggesting this is the solution to the budget problems we are having here in Pennsylvania,” said House Minority Leader Frank Dermody (D-Allegheny). “In my view, this is more of an attack on the people of Pennsylvania than it is a reflection of their priorities.”
Rank-and-file House Democrats were equally concerned about the consequences of the Republican plan.
"This is risky and reckless and will result in a major tax increase," said Rep. Madeleine Dean (D-Montgomery) speaking to the proposal on the House floor.
An analysis of the plan put out by the House Democratic Caucus summed up their concerns.
“The latest developments indicate the most glaring weakness is the continued refusal of House Republicans to face and fix a chronic recurring structural deficit, a problem largely of their own creation as they have repeatedly postponed real solutions, year after year, since the Great Recession,” it read.
The governor’s office came out later Wednesday slamming the House GOP proposal.
"Gov. Wolf and bipartisan members of the House and Senate understand that recurring revenue is necessary to solve the structural deficit and avoid a credit downgrade. The House Republican proposal does neither," said press secretary JJ Abbott.
"After leaving bipartisan negotiations in July, House Republicans have demanded to go it alone. Hopefully, now, they can get serious about funding the spending they passed two months ago, fixing the structural deficit and avoiding further consequences."
The plan now moves to the Senate for review and potential action when the chamber returns to voting session on Monday, if not sooner.
There, Senate Majority Leader Jake Corman (R-Centre) said the Republicans will study the plan.
"This evening, the House passed the fiscal code, a funding proposal they have been working on since the Senate plan passed six weeks ago. The Senate will now thoroughly examine the components of the House plan and inform our members on the proposal's impact on the financial position of the Commonwealth," he said.
"We recognize the urgency of the situation and will act swiftly to address the needs of the Commonwealth."
Without a balanced budget, state Treasurer Joe Torsella has warned that $860 million in state payments could be delayed starting Friday due to a General Fund solvency issue.
Jason Gottesman is the Harrisburg Bureau Chief of The PLS Reporter, a news website dedicated to covering Pennsylvania’s government.