Pa.'s 2015 budget may require new taxes, Zogby warns

Pennsylvania Budget Secretary Charles Zogby is a man in demand these days, as Gov. Tom Corbett and legislative leaders try to hammer out a 2014-15 state budget.

In what may be one of his last calms before the storm – the new budget is due by July 1 – Zogby stopped by PA Media Group headquarters to share the governor's priorities heading into the home stretch.

In short, despite a large current-year revenue shortfall Corbett is still committed to fighting for the targeted spending increases he outlined in February; he is conditionally open to some higher taxes to pay for them; he will accept the latter only with significant reform to Pennsylvania's public pension systems.

Here's a deeper look into excerpts of our conversation with Zogby. For a link to a video stream of the full session, click here.

With 2014-15 fiscal year revenues now seen as $870 million off the targets set when his spending plan was introduced in February, where does Gov. Corbett compromise?

If there is some progress on pension reform, it seems increasingly likely Corbett will accept some new revenues from higher taxes.

For a Republican incumbent who ran in 2010 in part on a no new taxes promise, that is a compromise. It would mean that Corbett's tax pledge has effectively been limited to personal income taxes and the state's sales tax.

"Other than a broad-based personal income tax increase and a sales tax increase, I think everything else is on the table," Zogby said Thursday. "I think right now we're not in the business of taking things off the table, other than those two."

That's because, Zogby said, Corbett wants to deliver on his stated priorities, including:

  • Some $306 million in new funding for basic education programs.
  • About $30 million to expand home-and community-based services for adults with intellectual disabilities.
  • $25 million toward college scholarships.

On the expense side, Corbett will likely be prepared to pare down the proposed increases in some of those priorities, though Zogby said that will depend on the negotiations ahead.

"I think he's flexible in terms of maybe the ultimate spending levels we arrive at regarding those priorities. I don't think there's flexibility in terms of getting a budget that reflects those priorities in some way," Zogby said.

"So I don't think that you're going to see a budget that doesn't have any (new) money for pre-k, no (new) money for higher ed scholarships, no (new) money for special education, no (new) money for waiting lists."

The public pension tab set by the actuaries for 2014-15 may be exactly that, despite Corbett's early calls for short-term relief for both the state and local school districts.

While Zogby dutifully repeated the governor's demand for reforms in the state's major public employee pension systems, he acknowledged Thursday that there may not be short-term relief for the state or its school districts.

That could blow another $170 million hole in this budget.

But Zogby didn't seem to draw a bright line around that near-term pension relief, striking a position that suggests a step toward long-term reforms is the governor's primary interest now.

Anything more, the budget secretary conceded, is going to depend on the ebb and flow of the negotiations.

"We're probably not going to have pension collaring," Zogby said at one point Thursday, citing House Republican resistance. "But I still think and believe... that this will be a major win for taxpayers."

The good news there is that most school districts, whose budgets are even more directly affected by the spiking retirement system contributions, have already built their 2014-15 budgets on the initial forecasts instead of Corbett's hoped-for taper.

As for the state and that $170 million?

"We're already challenged to get to balance," Zogby said. "... We're going to need to do that whether it (the expense over revenue gap) is $1.5 billion or $1.7 billion. So we'll be prepared to deal with that."

Why is Pennsylvania worse off than many other states this spring?

According to a recent survey of the National Association of State Budget Officers, most states are hitting or exceeding their revenue targets this spring. Pennsylvania will not.

A discussion of reasons for that will vary wildly depending upon the respondent, but here's Zogby's view.

Zogby points to a specific hit that Pennsylvania took from a recalculation of the formulas driving federal medical assistance payments that will lower annual  reimbursements here by some $341 million annually.

The budget gap is further exacerbated, Zogby said, by higher debt commitments made during former Gov. Ed Rendell's administration that are now coming home to roost.

Zogby contended Thursday that where Pennsylvania's annual debt service payments were about $550 million annually when Rendell took office in 2003, that line item is now more than $1.1 billion.

"That's $600 million that could have gone for basic education, higher education, human services costs," he said. "But now it's not available because the prior administration took on hundreds of millions of dollars of new debt service."

Finally, Zogby noted, Corbett has inherited the legacy of bad pension decisions by the Legislature and former governors that are now coming home to roost in the form of $600 million in new costs every year.

"I don't know that there's any state that's had that sort of mix," Zogby said.

Pennsylvania's budget is due July 1. How deep into overtime could this year's budgetary sausage-making run?

Zogby had no hard predictions Thursday.

His boss, this year, feels that for Pennsylvania's taxpayers "it's more important that we get this budget done right, and get a good budget that reflects Pennsylvania's spending priorities, than necessarily getting it on time."

But in his view, there appears to be no immediate concern about state worker furloughs or shutdowns of governmental services.

"I don't know that this really needs to linger that deep into July," Zogby said.

"Right now, we don't feel that that (state worker furloughs) is a likelihood and we certainly don't want to get employees and families worked up over something that they really don't have to worry about right now."

Corbett's Office of Administration is required to give a 30-day notice to union leaders of any potential furloughs, and that clock has not started to run yet, according to spokesman Dan Egan.

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