Wolf is ‘very optimistic’ on budget revenue negotiations

Despite the General Assembly leaving Harrisburg without sending him a revenue package to balance the $31.99 billion budget that lapsed into law earlier in the week, Gov. Tom Wolf told reporters that he remains optimistic such a plan can be reached in short order.

“We’ve been working pretty hard on this. We’re close – I’m optimistic we will get to a good outcome,” he said after an unrelated press conference Wednesday. “I think if you look at what we’ve done overall – I mentioned up here the bipartisan accomplishments – in a fairly short time we’ve got a lot of good things done reaching across the aisle. So, I’m optimistic.”

Despite that optimism, Wolf was scant on details about why he feels so cheery about the state of negotiations or what he has put on the table to try to reach a compromise.

“I’m negotiating,” he said in defense of his lack of details.

Exactly whom he was negotiating with and what he was negotiating was less than clear.

While some Senate leaders were in the Capitol meeting with the governor, and a scant number of rank-and-file House members roamed the halls, House Republican leadership cleared out of town Tuesday and – while they remain on six-hour notice to return – have no real plans to return to Harrisburg for at least the next several days.

Caucus spokesperson Steve Miskin noted, however, that the leaders of his caucus will remain available to discuss revenue-related issues over the phone in the absence of in-person discussions.

Otherwise, the Capitol was so empty by Wednesday afternoon that, at points, one could likely roll a bowling ball from the House side to the Senate side without being in danger of hitting anyone.

Given remarks from House Republicans when they cleared out of town Tuesday, that shouldn’t be surprising.

“As soon as we have an agreement we’ll be back and we’ll finish that – but I’m not optimistic,” said House Majority Leader Dave Reed (R-Indiana), when announcing their departure Tuesday evening. “We haven’t even heard from the governor since (Monday) at noon; that’s been one of the frustrations throughout this process.”

While many of the revenue options remain the same, including gaming expansion, further liquor privatization, one-time fund transfers and a loan from the Joint Underwriting Association fund, it was the governor’s late insistence on including a natural gas severance tax as part of the talks that threw a wrench into the counterproposal he made to the revenue package offered to him by Republican leaders Sunday.

According to sources, another option recently floated and currently being vetted for consideration is a gross receipts tax on third-party ticket sales like Orbitz and Expedia.

One of the reasons for the governor and his proxies not signing off on the Republican-crafted revenue agreement was its lack of recurring revenue.

In a revenue package that will likely amount to $2.2 billion, those familiar with the governor’s position have said he would like to see close to $1 billion in recurring revenue – GOP revenue plans have thus far fallen short of that figure by several hundred million.

Democrats in the Legislature called the Republican decision to leave town a failure of leadership. On Wednesday, some of them argued that since Republican-crafted revenue plans have fallen short of what is needed to balance the budget, they should have stayed in town until the job is finished.

“We believe the Republican packages that have been offered so far on revenue fell short in goals of having a responsible approach to funding our budget. They proposed a plan that was heavily reliant on borrowing more money and increasing the state’s debt,” said Rep. Leanne Krueger-Braneky (D-Delaware). “Democrats have come to the table with proposals for fair and sustainable solutions to our fiscal mess, but the Republican Speaker of the House refuses to bring those bills to a vote, including a severance tax.”

Others even called for an increase in the personal income tax, something with an exiguous amount of Republican support.

“If we increase the PIT by a quarter of a percent from where it is now – from 3.07 to 3.32 – we could generate a billion dollars. That would be spread out over a period of time and would be recurring income,” said Rep. Margo Davidson (D-Delaware). “We would still be the lowest PIT in the region, lower by a full percentage point than everyone in the region.”

Senate Republican caucus spokesperson Jenn Kocher said Wednesday their members are still focused on the outstanding issue of needed revenue.

“We continue to work,” she said. “Our members are anxious to return and finish all that has been left undone.”

Meanwhile, there is an ongoing legal question regarding the constitutionality of the unbalanced budget currently in force.

As it has become law, Pennsylvania’s FY 2017-2018 spending plan is a few hundred million out of balance when compared to revenue estimates released by the Independent Fiscal Office earlier this year, less anticipated tax refunds.

While revenue is currently coming into the commonwealth, some have contended the governor has broad authority to manage state funds to ensure state spending remains in alignment with current sources of revenue.

Wednesday, Gov. Wolf said his attorneys have legal backing that gives him the authority to spend money in the current situation.

“I’m not the attorney, but we are taking a close look at what we can do constitutionally, and I’m comfortable that we’re doing the right things,” he said.

Currently, the General Assembly has also declined to send to the governor bills to authorize funding for Pennsylvania’s four state-related universities – Penn State, Pitt, Temple, and Lincoln – and the University of Pennsylvania Veterinary School; combined, the total state appropriation for this is just shy of $600 million.

Additionally, the governor did not rule out the need for continued short-term borrowing to ensure the General Fund – essentially the state’s checkbook – has enough money to cover expenses from month to month.

“I think making sure we have money in the checking account to pay the bills is a recurring problem in any organization and will continue to be a problem here,” he said. “I’m not sure how much earlier or later the borrowing will be this year than last year.”

That may be an issue according to the two state row officers responsible for signing off on the short-term internal borrowing used in the past.

In a letter to lawmakers sent in June, Auditor General Eugene DePasquale and Treasurer Joe Torsella warned members of the General Assembly that the “commonwealth’s fiscal challenges” might put an end to the oft-used tool of borrowing from the Treasury’s long-term investment fund, known as STIP, to ensure the General Fund does not fall into a negative balance.

“We are concerned that next fiscal year’s borrowing needs may exceed the fund’s lending capacity and compel the Commonwealth to seek more costly public market alternatives as early as July or August 2017,” they wrote.

“To be clear, absent appropriate and significant fiscal changes, Pennsylvania will be paying the bills on borrowed money for most of the 2017-18 fiscal year. The continued drop in the average annual General Fund balance is indicative of a structural imbalance between revenues and expenditures. Without a correction of this imbalance, we anticipate the trend of lower General Fund average balances to continue to worsen in the coming years."