Gov. Tom Wolf on Tuesday unveiled a $43.7 billion state budget proposal for the 2022-2023 fiscal year that takes advantage of a record surplus to invest in education, but critics said the large spending increase was fiscally irresponsible and would lead to future budget deficits and the likely need to raise taxes.
Wolf, a Democrat, gave his eighth and final state budget address to a joint session of the state House and Senate where he declared that the commonwealth’s fiscal house was finally in order. Wolf said that seven years ago, Pennsylvania had experienced a $2 billion to $3 billion budget deficit. Now, the state will end the year with a $3 billion budget surplus and a Rainy Day Fund with more than $2.8 billion.
“We are no longer digging out of a hole. We’re ready to build. And this year’s budget does exactly that, by making new investments that will build a brighter future for Pennsylvania families,” Gov. Wolf said.
The governor proposed investing an additional $1.55 billion in basic education funding and an additional $200 million in special education, arguing the investment would reduce reliance on social service programs while strengthening the state’s economy.
Republican lawmakers who control the Senate were quick to note that the governor’s plan would increase spending by more than $4.5 billion, and if enacted into law, would lead to a $1.3 billion deficit next fiscal year, ballooning to a $13 billion deficit by 2026-27.
“A spending increase of $4.5 billion will not be helpful,” Senate Majority Leader Kim Ward (R-Westmoreland) said. “It will only intensify the personal financial pressures on Pennsylvanians in the form of higher taxes, energy prices, and the overall economic conditions confronting our nation including inflation and supply chain disruptions.”
The Commonwealth Foundation, a Harrisburg, Pa.-based think tank, said the governor’s proposed 16.6 percent increase in General Fund spending was unaffordable.
“While touting fiscal responsibility, Wolf would have Pennsylvania spend $3 billion more than it is taking in, generating deficits his successor will have to deal with,” said Commonwealth Foundation Senior Vice President Nathan Benefield. “Instead, lawmakers should prioritize taxpayers, grow spending responsibly, and give parents and students the education options they are seeking.”
Wolf’s budget plan also calls for reducing the state’s corporate net income tax rate, amongst the highest in the nation, in order to make Pennsylvania more competitive. The budget proposes a reduction in the corporate net income (CNI) tax rate from 9.99 percent to 7.99 percent on Jan. 1, 2023, with a reduction to 6.99 percent in tax year 2026 on a path to 4.99 percent.
The PA Chamber of Business and Industry, The Chamber of Commerce for Greater Philadelphia, and The Greater Pittsburgh Chamber of Commerce applauded the proposed tax reduction.
“Pennsylvania continues to lose new business prospects and our best and brightest to other states,” said PA Chamber President and CEO Gene Barr. “Our excessively high CNI rate puts the state at a competitive disadvantage when it comes to attracting and retaining jobs and impedes investment and economic growth.” He called the governor’s proposal to reduce the state’s CNI tax rate a “positive step.”
Wolf also again proposed raising the state’s minimum wage. Citing the fact that Ohio, Delaware, Maryland, New Jersey, and New York all raised their minimum wages to $14 an hour this year, Wolf’s budget would increase the minimum wage in the state to $12 per hour on July 1, 2022, and increase the minimum wage by $0.50 annually until it reaches $15 per hour in 2028. An estimated 1.5 million workers would get a boost in pay, the governor’s office said.
The National Federation of Independent Business (NFIB) in Pennsylvania stated that the state’s median wage increased from $16.50 in 2020 to $17.00 in 2021. “The market continues to move wages far beyond $7.25/hour, demonstrating little need for new government wage mandates,” NFIB said.
House Democratic leadership said the proposed budget was a necessary investment in the state’s pandemic recovery and its future growth.
“It’s also long past due that we make Pennsylvania a better place to work by raising our minimum wage to ensure workers get fair pay for a fair day’s work. Investing in early childhood education will strengthen our workforce and lowering the Corporate Net Income Tax will attract new employers to do business in the commonwealth. All of this, combined with investments in higher education, will help attract the high-skilled employees and successful businesses necessary to strengthen our economy from the ground up,” House Democrats said in a written statement.
Wolf’s budget includes a $1.5 million increase for Industrial Resource Centers across the state to help manufacturers remain competitive as they respond to changing markets and new technology. The proposed budget would also include $8 million for job training through the Workforce and Economic Development Network of Pennsylvania.
Last week, Wolf unveiled a $1.7 billion plan to help Pennsylvania recover from the pandemic with support for families, workers, small businesses, and statewide community revitalization through the American Rescue Plan Act. Wolf proposed recapitalizing the COVID Relief Statewide Small Business Assistance Program at $225 million to help roughly 11,000 additional businesses cover operating expenses and access technical assistance to stabilize their businesses.
Sen. John Yudichak (I-Luzerne/Carbon) said that while Pennsylvania families are struggling to make ends meet through rising inflation and higher energy costs, policymakers in Harrisburg and Washington D.C. are focused on partisan programs that divert attention away from helping families recover from the economic impact of the COVID-19 pandemic.
“I applaud the Governor for advocating for $225 million for small business assistance, but it is not enough and gets completely negated by the Governor’s $410 million Regional Greenhouse Gas Initiative (RGGI) tax that will increase utility bills for every small business and every homeowner in Pennsylvania,” Yudichak said.
Sen. Gene Yaw (R-23) agreed. “While the governor claims to propose no new tax increases, his plan raises the projected revenue from the Regional Greenhouse Gas Initiative (RGGI) from $300 million to $410 million. That’s roughly a 36% increase from original income projections that will be passed on to residents through increased electricity rates,” Yaw said.
The governor’s budget address will be followed by hearings in the House and Senate in the coming months. The state’s fiscal year begins on July 1.