Revenue discussions continue as lawmakers work to meet Monday deadline

Harrisburg – With June 30 come and gone, so goes another month of revenues and the close of the FY 2016-2017 budget year; however, unlike previous months, June’s revenue did come in slightly better than estimated.

According to figures reported by the Pennsylvania Department of Revenue, the commonwealth’s General Fund revenues for the month of June came in just over $11 million higher than expected. While major revenue generators like the personal income and sales and use tax were down, the corporate net income tax and inheritance tax outpaced estimates to put the commonwealth in the black for the month of June.

If only things were so rosy for the entire fiscal year.

Additional figures reported by the department earlier this week show the commonwealth is $1.1 billion – or 3.4 percent – below fiscal year estimates, creating the deficit figure.

In total for FY 2016-2017, Pennsylvania collected $31.7 billion in General Fund revenues.

With the FY 2017-2018 spending plan sitting on Gov. Tom Wolf’s desk, lawmakers are now searching for revenue sources to close out the deficit from FY 2016-2017 and fund an anticipated deficit for the current fiscal year and potentially beyond.

In a budget brief earlier this week, House Minority Appropriations Committee Chairman Joe Markosek (D-Allegheny) told interested parties that "reliable and recurring revenues are needed to close the structural deficit and end the chronic imbalances we’ve faced in recent years."

According to House Democratic caucus figures, Pennsylvania faces a $1.6 billion deficit for FY 2016-2017 when the failure to enact promised gaming expansion measures and a loan from the Joint Underwriters Association failed to materialize.

Additionally, when prior-year lapses are included, the current budget plan sitting on Gov. Wolf’s desk is $767 million out of balance, creating a total combined deficit of over $2.3 billion.

However, when funding for state-related universities – Lincoln, Pitt, Temple, Penn State, and the University of Pennsylvania Veterinary School – is pulled out of that figure (since those bills were not passed by the House), the current shortfall for the current year is reduced by about $595 million.

According to state law, the governor has until midnight Monday to decide whether to sign, veto, line-item veto, or let become law the budget document lawmakers sent him last Friday.

Essentially, that puts legislative leaders and the governor’s office on a short clock to negotiate a revenue package to balance the current year’s budget and close out FY 2016-2017.

While there was a dearth of legislators and legislative leaders in the halls of the state Capitol on Wednesday, discussion from over-the-holiday talks regarding a revenue package has proved somewhat positive, according to sources within both Republican caucuses.

As of Wednesday afternoon all revenue options continue to remain on the table, including: concepts to take as much as $70 million for the General Fund from the $250 million Racehorse Development Fund that goes to prop up the horse racing industry in Pennsylvania; get $250 million from a so-called “drink tax” that would change how alcoholic beverages are taxed at bars and restaurants by requiring the tax to be paid by the customer instead of the restaurant; expand liquor sales; and enact some form of gaming expansion.

As to that last component, things seemed to be narrowing.

Sources on Wednesday indicated that while a potential compromise gaming measure is being discussed, a controversial component of legalizing video gaming terminals (also known as VGTs) might be on the way out of revenue discussions as the Senate has not had meaningful success in whipping sufficient votes for the House-passed or a newly floated truck stop-only VGT proposal.

As the legislation passed the House, it was anticipated to bring in several hundred million dollars in the next fiscal year and the new proposal was said to bring in significantly less.

Borrowing from the Tobacco Settlement Fund is still the leading idea of how to close out the FY 2016-2017 shortfall.

Discussions on the revenue package are expected to continue through Thursday as lawmakers eye a Friday return to Harrisburg to start vetting proposals with rank-and-file legislators.

A voting session is expected to occur through the weekend as officials hope to wrap up the entire state budget process in time to beat the Monday deadline.

Should legislators fail to meet the Monday night deadline, a couple of things are possible.

First, Gov. Wolf could let the budget bill lapse into law like he did last year, effectively allowing a budget to take effect without the money to pay for the entire portion of the plan.

Pennsylvania law is rather clear in this area, stating the governor has the responsibility to bring an unbalanced plan in line with the certified revenue estimate via the power of the line-item veto.

However, in last year’s budget cycle, the governor allowed the FY 2016-2017 spending plan to become law in its entirety despite not having the revenue to pay for the entire plan.

At the time, Wolf said he was pleased with the pace of revenue discussions that led to his decision. Legislators then sent a compromise revenue plan to his desk a few days later.

Second, the governor has the option of using his veto pen to strike out certain appropriations to bring the budget into balance should lawmakers fail to meet the Monday deadline.

If that’s the case, Wolf would have to decide how much to remove from the budget, from which lines, and whether the fact that the non-preferred state-related university funding bills have not reached his desk might limit how much he’ll strike from the proposal.

Third, should a full veto occur, it’s unlikely that Pennsylvania will face the same type of government shutdown our New Jersey neighbors briefly saw during their recent budget impasse – at least, not at first.

According to a 2009 Pennsylvania Supreme Court decision, state employees cannot have their pay withheld if they show up for work.

During Pennsylvania’s lengthy budget impasse in 2015, state workers continued in their employment and were paid.

Also, state agencies will likely have some reserve funds to remain operational in the case of a protracted budget impasse, but the extent of that capability remains to be seen.

Normally, state amenities like parks are the first to see the impacts of an unpassed state budget.

The major effects are likely to be felt closer to Labor Day when public schools – some of which are nearly entirely dependent upon state support – might be forced to decide whether or not they will open their doors for the school year in the absence of state funding.