Weak revenue report would impact Corbett budget plan
HARRISBURG — The Corbett administration is bracing for another weak economic report this afternoon, when the state Revenue Department releases its April tax revenue collections.
The Legislature’s Independent Fiscal Office also is expected to revise upward its earlier end-of-the-year deficit estimate of $150 million.
If projections hold true, Gov. Tom Corbett and lawmakers could face a cumulative deficit of roughly $500 million to $600 million by the June 30 close of the fiscal year, according to legislative Democrats. That would put Corbett’s $29.4 billion budget proposal for the fiscal year beginning July 1 out of balance by $1 billion or more.
The bleaker revenue figures would put more pressure on lawmakers to come up with ways to pass Corbett’s proposed election-year budget, which the Standard & Poor’s credit rating agency criticized Monday as unbalanced and unsustainable.
S&P cited the budget’s reliance on pension payment reductions and other one-time revenue streams — some of which may not come to fruition — to bump up spending by 3.5 percent to $29.4 billion, even as the state’s job growth remains below national levels and its population ages.
The S&P report came as Senate Democrats looked to capitalize on Corbett’s low approval ratings.
In a letter, Senate Minority Leader Jay Costa of Allegheny County called on House and Senate Republican leaders to end the legislative session before the Nov. 4 general election in case Corbett loses. Costa said he fears that Republicans would be tempted to push through policies that had failed in prior years.
During an awards ceremony Tuesday, Corbett honored 10 teams of state employees whose innovations saved the state millions of dollars in the past year. Afterward, Corbett said he had not seen Costa’s letter and would not comment on “gossip.”
On revenue, Corbett said other states, such as New Jersey, are also facing weak economic forecasts. He said he would be meeting with Republican legislative leaders to go over revenue projections.
Corbett also said the state could improve its credit rating if it enacted the pension reform he seeks. But Corbett declined to say whether he would change his mind on reducing pension payments, which S&P highlighted as risky financial strategy because it increases the unfunded liability.
“I am always concerned with our credit rating and we will continue to get our credit rating where it needs to be,” Corbett said. “I know pension reform can be very helpful.”
Time is running out for Corbett and the Legislature to enact pension reform — as it did last year as part of the 2013-14 budget. Corbett’s plans to privatize the state liquor store system to put more money into public education, a big weak spot for him with voters, also failed to materialize in this fiscal budget.
Both items are finding their way back into next year’s budget negotiations, leading to heightened lobbying by both sides.
As part of his 2014-15 plan, Corbett also wants to postpone pension payments of $170 million to the state and of $131 million to school districts next fiscal year. Politically, the only way the Legislature would consider it is if they change pension plans.
A plan floated by Rep. Mike Tobash, R-Schuylkill, has been endorsed by the administration. Under it, new employees could apply the first $50,000 of their salary toward benefits guaranteed by a traditional pension system, and any salary above that mark would be covered by a 401(k)-style private plan.
But Tobash’s plan is not in bill form yet.
A liquor plan being floated by Senate Republicans also is not in bill form. It would allow wine to be sold in grocery stores and at beer distributors, expand beer availability and loosen restrictions on the amount of beer that bars and distributors can sell for takeout.
Liquor, however, would be relegated to the state stores, and the Liquor Control Board would still operate the wholesale side of buying wine and liquor in Pennsylvania.
The plan is opposed by unions, some beer groups and distillers.
The Senate plan would cost Pennsylvania taxpayers $20 million in lost revenue by the second year and every year afterward, said David Ozgo, an economist with the U.S. Distilled Spirits Council. In addition, Ozgo said, it would hamper consumer choice by forcing consumers to only go to a state store for spirits.
If not for the LCB’s profits, the Corbett administration would have had trouble paying the state’s bills last month.
In March, the state lost $88 million in bank taxes. The lost revenue came after Corbett and the Legislature changed the banking tax, at the behest of the industry, to reduce taxes on state-incorporated banks while putting a heavier tax on out-of-state banks as part of the 2013-14 budget. The change was supposed to be revenue-neutral. It was not.
That bank loss compounded the weak revenue collections that started in July. The deficit would have reached $176 million in March if the state hadn’t asked the LCB to turn over more than 60 percent of the profits it earned from the sale of wine and spirits.
The $80 million transfer, which occurred three months earlier than normal, reduced the true year-to-date deficit to about $96 million.
The Associated Press contributed to this report.