Senate tries to figure out budget-balancing endgame

The Pennsylvania Senate returned to session Monday seeking a way forward to close the roughly $2.3 billion budget deficit encompassing the current and past year’s spending plans.

Outside of legislation to fund Pennsylvania’s state-related universities and the University of Pennsylvania Veterinary School, all major budget-related bills currently in the legislative process started the day Monday in the Senate, including budget implementation bills relating to public schools and state fiscal affairs; a tax bill, and a bill that could lead the way for expanded gambling through means like internet gaming and ancillary casinos.

How those pieces would help piece together a final budget-balancing plan was the main topic of discussion in Monday’s closed-door caucus discussions, but what that endgame might look like was still a matter of debate.

As it pertains to the Tax Code, a new argument centered around whether such legislation was necessary given a recent state Supreme Court decision that kept in place lower caps on net operating loss carryforwards used by businesses to limit tax liability when they incur business-related losses.

“There are some folks who, in light of the (Supreme Court) decision, are wondering whether we need to do that,” said Senate Minority Leader Jay Costa (D-Allegheny). The decision “is a modest windfall to the Commonwealth.”

While the House-passed Tax Code bill counted around $52 million in the current year and $80 million for next year following a fix to the Net Operating Loss language that might have been needed should the current language have been found unconstitutional, Sen. Costa speculated that the upholding of the rate structure could net state coffers $30 million more per year than booked by the language in the current Tax Code.

According to Senate Majority Leader Jake Corman (R-Centre), however, the House-passed Tax Code bill is likely to be taken up later this week depending on what the House does when they return to session Tuesday with budget-related bills recently passed by the Senate.

“We are here today to begin the process,” he said. “Hopefully, they’ll begin to move (those bills) tomorrow. If so, we’ll move the education code tomorrow and then, hopefully, be able to tee up gaming and the Tax Code on Wednesday. If everything is moving together, we could be done on Wednesday.”

The Public School Code bill is also awaiting action from the Senate, but whether the chamber will agree to what the House sent over last week remains to be seen.

Currently, controversial language in the legislation will end seniority-based economic-induced layoffs, instead tying such layoffs to teacher performance standards. That language was previously approved by the Senate in an earlier iteration of the bill.

New provisions will allow high-performing charters to band together under one administrative roof, something anti-charter factions have opposed. Moreover, the current version of the bill includes authorization for an additional $10 million in Educational Improvement Tax Credits, something the Senate did not agree to before the House sent it their way at the end of last week along a narrow 105-81 vote.

However, the legislation does include some sought-after reforms aimed at ending so-called “lunch shaming” and other items desired by both Democrats and Republicans.

Another piece of unresolved legislation needing Senate action is gaming expansion, which continues to be a bone of contention both between the House and the Senate and within the Senate itself.

Last week, Corman stated that his chamber will not be advancing a gaming bill that includes any component of the much-debated video gaming terminals.

Earlier this year, the House narrowly advanced the current version of the gaming expansion bill with a substantial VGT component that was seen as a means to avoid a major tax increase.

Currently, the House has booked $265 million in the first year and $210 million recurring from its version of the gaming bill that includes VGTs.

Meanwhile, the Senate is likely looking at advancing a bill that deals with reimplementation of language providing a local share of casino revenue, authorizing ancillary/satellite casino locations in underserved areas and legalizing iGaming and fantasy sports, while allowing slots in airports and iLottery.

Speaking to the issue of gaming expansion on Monday, Corman noted the legislation is still a work in progress, but could be voted upon as soon as Wednesday.

“We are putting a bill together and will hopefully be able to move it over to the House Wednesday,” he said.

Early recurring revenue estimates from that plan, which has yet to be settled on in its entirety, sit somewhere around $150 million to $175 million.

While the legislation is not expected to cause a protracted fight in the Senate itself, some House members on Monday speculated that gaming legislation, absent a VGT component, is unlikely to get to 102 votes in their chamber.

“I question if we have the votes in the House without the VGTs, because the majority of the members are talking that it’s time we stick with our small businesses and our clubs before we go with the big (casinos),” said Rep. Kurt Masser (R-Northumberland), who is currently a member of the House Republican caucus’s leadership team.

“I think there are going to be a number of members, certainly, that are going to draw that line in the sand. I don’t know if we have the votes without VGTs. I’m just hoping that the Senate will see that we can really use these.”

All of the uncertainty also puts lawmakers up against a couple of different deadlines.

The first is likely to come later this week when the state’s General Fund is set to plunge into negative territory without additional short-term intervention by the way of borrowing from the state Treasury.

In a statement earlier this month, Treasurer Joe Torsella noted that additional short-term borrowing approval should not be assumed absent a balanced budget.

Another, more fluid deadline involves the progress the Wolf administration and the Pennsylvania Liquor Control Board make with financial transactions the governor initiated as a means to try to manage the state’s finances on his own by closing the deficit via monetization of future cash transfers from the board.

As recently as Friday, the PLCB announced that it has started the process of hiring outside counsel and consultants to explore entering into a certificate of participation agreement for $1.25 billion. At this point, the Wolf administration has not given a timeline for scaling back efforts to pursue such borrowing should the General Assembly agree to securitize future Tobacco Settlement Fund revenue, as has been part of ongoing discussions.

As of Monday, Pennsylvania’s revenue-related budget impasse has lasted 115 days.

Jason Gottesman is the Harrisburg Bureau Chief of The PLS Reporter, a news website dedicated to covering Pennsylvania’s government.