Scarnati on budget: ‘How we close this out is yet to be seen’

Harrisburg – With rank-and-file legislators heading out of town Wednesday and not set to return until just five days shy of the traditional June 30 budget deadline, legislative leaders continued to come up short on a spending plan and revenue package that will close out the FY 2016-2017 and FY 2017-2018 budget cycles.

“I think that things have probably gone a little slower this budget season; nonetheless, things are accelerating to get a general appropriations bill done by June 30 – I think all eyes have to be on that,” Senate President Pro Tempore Joe Scarnati (R-Jefferson) told reporters in a quick hallway interview Wednesday morning.

However, while ancillary issues are likely to take somewhat of a backseat to getting a GA bill across the finish line, how the budget for next year will balance – and what revenues will be used to close out next year’s and the current year’s budget cycles – still seem far off from any sort of an agreement.

“It goes without saying that tax increases – new taxes – are even difficult to discuss, so how we close this out is yet to be seen,” Scarnati said. “I can assure you everyone is working overtime to figure out how to close this gap. I wish I could say we are going to see an explosion in the economy because that’s what we really need, but Pennsylvania hasn’t seen that.”

According to Senate Majority Leader Jake Corman (R-Centre), Republican legislative leaders are close to landing on a spend number agreement somewhere around $31.8 billion, but big revenue items still need agreement.

In total, he said, lawmakers will need to find $2.2 billion in new spending: $1.5 billion dedicated to closing out the deficit for the current fiscal year and another $700 million in revenue for the coming fiscal year.

He added that while the menu of options in terms of how to raise that money has not gotten any smaller, the issue of gaming expansion was temporarily removed from discussion in the Senate this week over his concerns about the House-passed gaming expansion measure sent to the Senate just two weeks ago.

“As it always is with gaming bills, trying to keep it limited is difficult,” he said. “When the video gaming terminals came into the discussion, that brought the ancillary locations into the discussion – now you are talking about essentially seven to eight more casinos…and machines in every bar and tavern. You are talking about a larger expansion of gaming than what the 2003 bill was to set up gaming in Pennsylvania – all being driven by a revenue number and not a policy discussion.

“At some point,” he continued, “we have to sit back and look at the public policy that surrounds all this and ask if this is good for our communities or if our communities should have some say in this before we pop up more casino-lites around the state or more VGTs.”

Scarnati elaborated on the tough dynamic in the Republican caucus concerning gambling and the industry in Pennsylvania.

“My experience with gaming in the Senate Republican Caucus, I can boil down real simply: You have a third of the members of the Senate Republican Caucus who oppose gaming because they oppose gaming. You have a third of them that have a gaming interest within their district, so they’re somewhat not in favor of competition for casinos. Then, you’ve got a third of the members in our caucus that could be influenced one way or another to vote for something,” he said. “There’s no strong consensus and, when you start off with two-thirds of your caucus either principally against it or certainly economically opposed to something, it’s difficult. That’s why we’re where we’re at.”

Another topic of revenue-generating discussion has been the utilization of state assets through leases or borrowing to provide a solution to the state deficit situation.

On Wednesday, Corman noted that while the idea has been floated, it is undeveloped to the point that there is really no ownership of the concept.

“That’s certainly been suggested in some corners, and we are working through that possibility, but we are nowhere near landed on it,” he said.

He emphasized that any borrowing, if it were to be a concept adopted for revenue for the current or coming year, needs to be done for a one-time fix and not in a way that would create ongoing debt for future legislatures.

“If – and that’s a big if – you are using it to remove a one-time debt, then that’s fine, but you can’t set yourself up for structural debt or you’ve just put yourself in a deeper problem,” he explained.

In the House, while not directly dismissing the idea of borrowing, Speaker Mike Turzai (R-Allegheny) said Wednesday that the majority Republican caucus in that chamber is looking more at the revenue generators already sent to the Senate in terms of gaming expansion and further liquor privatization as the means to balance the state budget.

“We have an obligation to take any proposal seriously and present it to our caucus and we’ll do that,” he said. “The House did send over privatization bills with respect to wine and spirits that would bring in enhanced revenue and we also sent over a gaming expansion proposal that would bring in revenue. We would hope that each of those avenues would be part of any package.”

In addition, he said, fund transfers akin to those proposed by Rep. Seth Grove (R-York) and the Pennsylvania Taxpayer Caucus could be used to fill any remaining holes.

In a 2016 report, the Taxpayer Caucus alleged there are $200 million in lapsed funds available for use in future budget years based on past practices of using lapsed funds for budgetary balancing.

Gov. Tom Wolf threw cold water on the potential borrowing concept Wednesday, saying he’s looking for real and sustainable revenues for the budget.

“I think we ought to have a shale tax; I think we ought to increase the minimum wage, which would raise some revenues; and I put in some other ways of eliminating loopholes – none of what I proposed was raising any broad-based taxes,” he told reporters. “That’s what I’m looking for: something that is recurring revenue, not another one-time fix, not another thing that just kicks the budget problem – the deficit problem – down the road another year or two. I’m looking for some real solutions here and that’s what I think I proposed. I’m looking for a final budget that enshrines that philosophy.”

The governor has not yet publicly stated his stance on gaming expansion, hoping not to influence the discussions among the House and Senate members, whom he feels should be responsible for crafting a plan.

As to the concept of consolidating four human services-related state agencies, that proposal might have issues in the Senate during this budget cycle, with Corman deferring to the possibility of a commission to study the issue of actual consolidation while looking to use some of the formulary and other savings that could be brought about by consolidation in the current budget cycle.

“I’m not sure we’re in a position to do it now,” he stated. “You’re talking about creating one of the largest state agencies in the country…So, we want to continue the dialogue and set up maybe some sort of task force or commission in short order that would work through this and report to the Legislature. I think three months is a little short (to vet the consolidation). You’re talking about vulnerable constituencies here.”

Senate Appropriations Committee Minority Chairman Vincent Hughes (D-Philadelphia) also spoke about some of the revenue plans being discussed by Republicans.

He mentioned the impact Republican-backed potential borrowing measures could have on the commonwealth.

“It probably will lead us to a similar situation on June 21, 2018,” he said. “I wouldn’t be surprised if we were looking at a similar scenario if the majority chooses to borrow its way through this process for 2018, but only deeper in the hole.”

He discussed, in terms of revenue generators, the need to raise the minimum wage, clamp down on so-called “wage theft” and the benefits of the “Fair Share Tax,” a proposal he has introduced along with Sen. Art Haywood (D-Montgomery).

The Fair Share Tax plan would divide the state’s personal income tax into two parts: a tax on wages and interest, which would be reduced from 3.07 percent to 2.8 percent; and a tax on income from wealth (like capital gains and gambling winnings), which would increase from 3.07 percent to 6.5 percent.

“It really starts to drive and get more revenues off of the wealthiest families and individuals in Pennsylvania and, in fact, gives a break to middle-income and modest-income families all across the commonwealth,” he explained. (Every Republican leader interviewed clearly stated on Wednesday that broad-based tax increases are off the table.)

While the Legislature will not be holding a formal voting session until at least next Monday, legislative leaders are anticipating continuing budget discussions both in-person and over the phone in the hopes of having a plan to present to members when they return.

Also, there is reason for some optimism that things will be wrapped up, if not in the next several days, then at least in short order following the July 4 holiday.

While frustrations are running high among some members, there is reportedly positive movement on all fronts relating to spending and revenue.

As Corman put it, the last mile is the hardest.

“I think there is a general desire to get it done on time; there’s no big policy fight that we had two years ago, but the decisions are difficult,” he said. “Every time you are talking about a $2.2 billion deficit, that’s not an easy thing to solve. It’s going to take all our collective ideas to solve it, but I think the relationships and the spirit of trying to get it solved are good.”

Jason Gottesman is the Harrisburg bureau chief for The PLS Reporter, a non-partisan, online news site devoted to covering Pennsylvania government.