In budget impasse, taxes still the issue

HARRISBURG - Pennsylvania's nearly two-week budget impasse comes down to one word:

Taxes.

Throughout negotiations, Democratic Gov. Wolf has uttered the dreaded T-word that Republicans who control the legislature have studiously spent the last four years avoiding.

Personal income taxes. Sales taxes. Cigarette taxes. Bank shares taxes. A tax on natural gas drillers.

Wolf has proposed hiking them all to erase what has become a recurring deficit in every budget cycle, raise more money for public schools, and finance a bold but controversial plan to lower property taxes in every district.

The governor has argued such investment is a must to compensate for a state that is cash-starved and has for years been pulling the fiscal equivalent of treading water.

The Republicans who control the legislature have recoiled from many of Wolf's proposals. They say they are open to new revenue - a number of GOP legislators, for instance, have made no secret of their support for a gas severance tax - but can't stomach Wolf's panoply of new or increased levies.

"Unless Pennsylvanians in great numbers call us and tell us, 'Please impose all these broad-based taxes on us, we can't live without them and we can't wait a moment longer,' we will be at a stalemate," Rep. Scott Petri (R., Bucks) said last week, echoing the sentiments of more than a half-dozen GOP members interviewed by The Inquirer. "Because I won't vote for it and I don't think others will either."

The issue of taxes has been a tangled one in the Capitol since the days of Gov. Ed Rendell's administration, under which the last broad-based tax increase was approved. That was 2003, Rendell's first year in office, and a hike in the personal income tax was green-lighted, but only after a nine-month budget standoff.

As the recession hit in Rendell's second term, and the state's money was drying up, the Democratic governor tried, unsuccessfully, to persuade the legislature to hike the sales tax. The last time it rose was 1968, under Republican Gov. Raymond P. Shafer.

Rendell in his final year also tried to strike a deal on a 5 percent severance tax on drilling in the Marcellus Shale, but that also was rejected.

For his successor, Gov. Tom Corbett, taxes were practically a banned word in budget conversations, as the Republican had taken a no-tax pledge during his campaign.

Corbett did agree to an "impact fee" on natural gas drillers early in his tenure, but he fought every year after that with legislators from his own party over finding new ways to generate money.

The Wolf administration has taken delight in pointing out that some of the GOP leaders now balking at tax increases were the same ones talking about the need for new sources of revenue under Corbett. Last week, the governor's press team dug up past quotes from Senate Majority Leader Jake Corman (R., Centre) to illustrate that point.

It did little to generate goodwill on the Republican side.

"Rhetoric sometimes pushes people away rather than bring them closer together," noted Drew Crompton, the Senate's top Republican lawyer. "Rhetoric solidifies people's positions, not softens them."

Neither side has even hinted about progress on any issue - although several longtime Harrisburg observers argue that a drilling tax should be topping that list. Pennsylvania remains the only major gas-producing state without a severance tax.

Democrats have been the most vocal supporters, but a tax on Marcellus Shale drillers has plenty of Republican support, particularly among legislators from the Philadelphia suburbs.

Several have even introduced their own bills: Rep. Gene DiGirolamo (R., Bucks) has proposed a 3.2 percent drilling tax while keeping the current impact fee in place.

Sen. Robert Tomlinson (R., Bucks) is pushing for a 5 percent severance tax, with proceeds used to offset the unfunded liability in the state's troubled pension systems. Its cosponsors include four other southeastern Republicans: Sens. Dominic Pileggi of Delaware County; and Stewart Greenleaf, John Rafferty, and Bob Mensch, all from Montgomery County.

Given the bipartisan support, could drilling be a way to break the budget logjam?

"In my opinion, if the governor said, 'I want a Marcellus Shale tax,' they would have sat down and negotiated," said Petri, who also has pushed severance-tax legislation. "Instead he has said: 'I want Shale and income and sales and a cigarette tax. . . . I want it all.' "

Still, some of the legislature's highest-ranking Republicans are adamantly opposed to a new drilling tax, including House Speaker Mike Turzai (R., Allegheny), who among other powers helps control which bills go to a floor vote.

And Rep. Frank Farry (R., Bucks) said there is still disagreement over what the tax rate should be, as well as what it should fund.

Wolf has proposed a 5 percent tax on the value of natural gas, plus a flat fee of 4.6 cents per unit of gas pulled from the ground. He would use that money for public education, which saw severe funding cuts in Corbett's first year in office.

Rep. Bill Adolph (R., Delaware) said last week that Wolf's severance-tax proposal would not fetch nearly as much as he projected - $1 billion - because natural gas prices are so low.

Adolph believes that is why Wolf has not backed off other taxes in his plan, ones less palatable to legislators, even as he's rejected the GOP's two signature cash-generating proposals: privatizing the sale of wine and liquor and reining in the cost of public employee pensions.

For his part, Wolf has remained steadfast in his argument that Pennsylvania's precarious fiscal state was created by the GOP's lack of will to do anything differently.

"I was sent here to do something to move Pennsylvania forward," Wolf told reporters Friday. "I was sent here because people wanted a change. They didn't want to be doing the same things we did in the past. And that's what I'm trying to do."

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