Pa. Senate approves higher taxes to balance budget

- The Pennsylvania Senate on Thursday approved a plan to balance the state budget that includes heavy borrowing and hundreds of millions of dollars in tax increases, including a severance tax on Marcellus Shale gas drilling and new or higher taxes on consumers' utility bills and online purchases.

Republicans who control the chamber unveiled their plan to close a $2.2 billion hole in the $32 billion state budget late Wednesday. It includes a proposal to borrow $1.3 billion against Pennsylvania's annual share of the 1998 multistate settlement with tobacco companies.
 
Senators approved the bill 26-24, and it drew bipartisan support, including from Democratic Gov. Tom Wolf.  It now heads to the House, where it faces an uncertain future after majority Republicans last week rejected a proposal to leverage the tobacco money. House Republicans are also likely to resist calls for higher taxes to help balance the budget.
 
Ahead of the decisive vote, Senate Majority Leader Jake Corman, R-Centre, urged passage, saying lawmakers had held the line on new taxes as long as they could but simply needed more revenue to avoid a freeze on some government spending. 
 
"We came here to make tough choices," he said on the Senate floor Thursday.
 
But state Sen. Scott Wagner, R-York, who is running for the GOP nomination to challenge Democratic Gov. Tom Wolf next year, blasted the legislation's tax increases on "hard-working Pennsylvanians" and said state agencies are wasting money.
 
"The only winner is the beast that is state government," he said.
 
The legislation includes a severance tax on natural gas drilling that Corman said would generate about $100 million per year. Gas drillers would continue to pay an existing impact fee that is split by the state government and communities in the Marcellus.
 
Energy companies have long objected to a severance tax, saying it would harm the state's competitiveness. Pennsylvania is the nation's No. 2 gas-producing state after Texas.
 
The proposal "will erode the commonwealth's competitive advantage ... and cost family sustaining Pennsylvania jobs," said David Spigelmyer, president of the Marcellus Shale Coalition, an industry group.
 
Environmental advocates criticized other provisions of the bill that address industry complaints about the lengthy permitting process for new gas wells, saying they gut the Department of Environmental Protection's ability to regulate properly and should be challenged in court. 
 
Consumers, meanwhile, would face $405 million in new or higher taxes from a gross receipts tax on their natural gas, electric and telecommunications bills. 
 
The new tax on natural gas bills would be 5.7 percent, or $5.70 on a $100 utility bill. The existing tax on electric bills would rise by more than a half-percent to 6.5 percent, while the tax on phone bills would increase by 1 percent, to 6 percent. 
 
GOP senators hope to raise another $43.5 million by requiring online marketplaces like Amazon and eBay to collect sales tax from third-party sellers using their sites. The Senate plan also counts on $200 million in revenue from a massive expansion of casino-style gambling that hasn't been approved and is still the subject of a disagreement with the House. 
 
House Republicans failed to agree on a way forward last week, rejecting a proposal that would have combined $1.5 billion in borrowing with hundreds of millions of dollars drawn from programs not included in the state budget, an approach designed to avoid higher taxes. 
 
That left it to their counterparts in the Senate.
 
Wolf, who had allowed the badly out-of-balance budget to take effect without his signature, "commends the Senate for taking a responsible step toward balancing the budget and for their willingness to include a tax on Marcellus Shale," his spokesman, J.J. Abbott, said in a statement late Wednesday.
 
Failing to balance the budget could result in a freeze on some government spending, potentially affecting schools and counties that administer social service programs. Additionally, nearly $600 million in state aid to Penn State, the University of Pittsburgh, Temple and Lincoln universities and the University of Pennsylvania's veterinary school remains in limbo. 
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   The Pennsylvania Senate passed a revenue package to patch a more than $2 billion hole in the state's $32 billion budget for the fiscal year that began July 1. It could face opposition in the House of Representatives before it reaches the desk of Democratic Gov. Tom Wolf, who supported it. Here are details:
 
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   NATURAL GAS PRODUCTION
 
   The state would raise an estimated $100 million a year by imposing a new volume tax on natural gas from the Marcellus Shale, the nation's largest natural gas field. The effective tax rate for 2017-18 would be 2 cents per thousand cubic feet, although the annual tax rate may range from 1.5 cents to 3.5 cents. That would raise significantly less than what Wolf had originally sought. In February, he proposed a 6.5 percent tax on the value of the production. In 2015, he had proposed a 5 percent production tax, plus 4.7 cents per thousand cubic feet. Money from a new volume tax would ensure that proceeds from an underlying impact fee imposed on Marcellus Shale wells in 2012 do not fall below $200 million a year. 
 
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   BORROWING
 
   The Senate plan would borrow $1.3 billion against future revenues that Pennsylvania will receive from its share of a landmark 1998 multistate settlement with tobacco companies. With interest and borrowing costs, that could mean Pennsylvania will repay $2 billion over 20 years.
 
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   NATURAL GAS SERVICE
 
   A tax on natural gas utility service would be imposed at 5.7 percent, or $5.70 on a bill of $100, to raise an estimated $300 million annually. It was a 5 percent tax when it was eliminated starting in 2000. Natural gas is Pennsylvania's most prevalent home-heating fuel, used in more than half of the state's roughly 5 million households. It also presumably would be a growing revenue source as the number of natural gas-heated households rises. 
 
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   ELECTRIC SERVICE
 
   A tax on home electric bills would rise to 6.5 percent from 5.9 percent currently.
 
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   TELEPHONE SERVICE
 
   A tax on home and cellular telephone bills would rise to 6 percent from 5 percent currently.
 
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   ONLINE SALES
 
   Pennsylvania's 6 percent sales tax would extend to sales in online marketplaces run by third-party vendors.
 
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   GAMBLING
 
   The Senate's revenue plan counts on $200 million from an expansion of casino gambling in Pennsylvania, already the nation's No.2 casino state.
 
   Senate Republicans have had differences with Wolf and House Republican leaders. A proposal brokered by Senate Republicans would hinge on Pennsylvania's casinos being able to bid on a satellite casino license allowing up to 700 slot machines and 100 table games at a new facility, and paying licensing fees to operate casino-style gambling on websites and mobile applications. Many details remain under wraps.
 
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   TRANSFERS
 
   The state would take $200 million from the nonprofit Pennsylvania Professional Liability Joint Underwriting Association, an organization created by state law in 2002 to offer medical malpractice insurance. The association sued in federal court to block the state from borrowing that amount in the recently ended fiscal year.
 
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   Source: Senate Republicans

 

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