To protect the special interests of public employee unions, Governor Tom Wolf vetoed a $30 billion 2015-2016 General Fund budget approved this week by the Republican-controlled General Assembly. The responsible, Republican budget would have saved billions by reforming our run-away public pension systems and would have raised nearly $300 million by ending the byzantine state liquor monopoly.
The budget closes a structural deficit and increases funding for education without raising taxes. For his part, the governor prefers maintaining state control over liquor and wine sales, and throwing borrowed money at a hemorrhaging public pension system. Both moves protect the public sector unions while ignoring the productive sector, and both will require billions in new taxes.
This veto sends a clear signal to job creators: Tom Wolf wants to raise your taxes, and this could not be worse for Pennsylvania's business competitiveness. In a recent state-by-state profile of business friendliness, "Manufacturing & Logistics Report" by Conexus of Indiana, we came in "C" or worse in nearly every category, and even in a comparison of business tax structure, where we earned a big fat "F," we can still drop lower.
"Six states got an 'F' using the bell curve," said Michael J. Hicks, Professor of Economics and Business Research at Ball State and author of the study. "They are there because of the effective rates but also the poor performance of services." Hicks said he choose the nine categories to give businesses the clearest idea of the state's business climate, when considering whether to locate there.
We are only marginally better in the other categories. In "Expected Fiscal Liability Gap" we earned a "D" and in "Worker Benefit Costs" another "D". One area we actually scored an "A" was "Logistics Industry Health", which unlike the other categories is due to past industry strength and not government policy.
"Most of the bad stuff can be changed," Hicks said. "That's the good news." Pennsylvania's reputation could sure use the boost the Republican budget would provide.
The damage from the fallout belongs to the governor, as Senate Majority Leader Jake Corman (R-Centre) said at a recent briefing at the PMA headquarters in Harrisburg. "If (the governor) in July wants to defend higher taxes, state control of liquor, no action on pensions after he vetoes our budget then good luck to him," Corman said speaking at the quarterly meeting of the Pennsylvania Leadership Council. "We feel very confident and comfortable defending this budget."
Governor Wolf is holding a weak hand, considering that the House called his bluff by holding a vote a month ago on the Governor's tax plan, which was defeated 0-193.
"We had the vote the governor asked for on the House floor," House Majority Whip Bryan Cutler (R-Lancaster) said at the PMA meeting. "Simply put, he received no votes."
After every Democratic House member voted against his plan, the governor dismissed it as a "stunt." Lawmakers apparently were similarly engaging in political mischief by sending him a budget he said was full of "gimmicks."
Here are some of those so-called gimmicks:
The budget adds $370 million more into education, keeping us ahead of 39 other states in per pupil spending; prevents state and local governments from being bankrupted by pension debt; raises millions through the sale of liquor licenses that will expand the selection of wines and liquors, lower prices, and make it more convenient for consumers to shop.
In the 48 other states where liquor and wine sales are conducted by private business, convenience of shopping, prices, and selection are better as one would suspect. Can you imagine a Delaware resident setting a day aside to make a liquor run to Pennsylvania? State control does not equate to lower highway fatalities or alcohol abuse. Pennsylvania is in fact on the high side of average in those statistics.
PMA President David N. Taylor applauded legislative leaders for adhering to principle and defending the taxpayers while crafting the budget, particularly regarding the governor's request for a severance tax on drillers.
"Pennsylvania has reserves of natural gas to rival any in the world," Taylor said. "Instead of having this smash-and-grab mentality for more money now, government would actually see greater revenues over time by optimizing conditions for growth."
The governor's proposed severance tax alone would sink us to the lowest of the low, the biggest losers in a group of losers.
A recent report, "The Economic Impacts of the Proposed Natural Gas Severance Tax in Pennsylvania", found that by 2020, for every net $1 the commonwealth may gain from imposing a severance tax, the gross state product of Pennsylvania's economy is set back by over $4 (approximately $2 billion per year in GSP vs. approximately $0.5 billion per year in severance taxes).
Just a few weeks ago, Horsehead Holding Corp. announced its subsidiary had closed on the sale of 1,000 acres of land in Monaca, Pennsylvania to Shell Chemical Appalachia LLC. The sale is a precursor to the building of a cracker plant, which processes ethane into the building blocks used for manufactured goods and materials. Thousands of jobs are at stake. But there is still no guarantee that Shell will build the plant in Pennsylvania. The Republican budget says we want the cracker plant here; the Wolf plan says put it wherever you like.
For the sake of our prosperity, our commonwealth, and our future that the upcoming budget negotiations will yield the reforms Pennsylvania needs to achieve fiscal stability and strong economic expansion. Stay tuned for more.