Impasse over: Wolf, Pa. lawmakers strike budget deal

HARRISBURG - Pennsylvania has an annual budget - nearly nine months sooner than it took last year.

The Republican-controlled legislature on Wednesday approved budget bills that use new taxes on tobacco and digital downloads, and changes to gambling and wine sales, to pay for the $31.5 billion spending plan it passed last month. Gov. Wolf pledged to sign them.

The swiftness of the deal, reached less than two weeks after the July 1 deadline, stood in contrast to the partisan divide that gridlocked the Capitol and overshadowed much of Wolf's first 18 months in office.

The agreement delivers more money for two of his priorities, public schools and opioid and heroin addiction prevention. But Wolf was forced to compromise on his demand to avoid one-time cash infusions to balance the books: The deal contains about $700 million in such maneuvers.

Republicans prevailed in their effort to block any broad-based taxes, and won changes to the state-run alcohol sales system that some have hailed as the first step toward privatization. Those changes could bring $149 million in new revenue, and legislators hope to yield more by expanding gaming.

A side issue involving loosening caps on charter school enrollment, which critics said would have hurt Philadelphia and other cash-strapped school districts, had threatened to derail negotiations. Officials removed it from the budget talks and said the issue would have to wait for resolution.

Also delayed will be crafting the gambling expansion bill that legislators are banking on raising $100 million to balance the budget.

That won't come until fall. After wrapping up their budget votes, lawmakers recessed for the summer. They are not due to return until late September, and then only for a short session, in part because it is an election year.

Still, striking a deal on a revenue plan was momentous, particularly given the recent partisan history in Harrisburg. Wolf praised it as "an important step forward."

"Today's passage of a revenue package means that we avoid another lengthy impasse, our budget is balanced this year, and we have greatly reduced the commonwealth's structural budget deficit," he said in a statement.

It had been a difficult process in Pennsylvania's tax-averse legislature, where many Republicans early on declared they would not raise broad-based taxes, such as the personal income and sales taxes.

Last year, Wolf and Republican leaders wrangled for nine months over how much to spend and how to pay for it. In the end, the Democratic governor refused to sign a GOP-crafted budget, allowing it to lapse into law without his signature.

This year, legislators approved a spending plan by the July 1 start of the new fiscal year, but not a way to pay for it.

The last couple of weeks were dominated by closed-door meetings to find ways to raise new dollars. Talks would show signs of progress and then abruptly derail, as the sides added new demands, or resurrected old ones that could not generate a consensus.

That cycle broke Sunday, when Wolf allowed the $31.5 spending blueprint to lapse into law.

Over criticism that his actions flouted the state constitution, which requires a balanced budget, Wolf said his inaction was not a sign of protest. He said he did it because he believed the legislature could deliver a revenue plan, and quickly.

Whether political bluff or not, it produced results.

The final agreement calls for a $1 tax increase on a pack of cigarettes - from $1.60 to $2.60 - to generate $430 million. It imposes a 40 percent tax on the wholesale price of electronic cigarettes, as well as a 55-cent-per-ounce tax on roll-your-own tobacco and smokeless tobacco, raising $63 million. Cigars would continue to be exempt.

The 6 percent sales tax would be extended to include digital downloads of books, music, games, movies, apps, and satellite radio services, to raise $47 million.

An additional $100 million would be raised through a tax-amnesty program, and $16 million by extending the 3.07 percent personal income tax to lottery winnings.

The legislature already has passed a bill to allow private retailers, such as supermarkets, to sell wine. It is among several changes in Pennsylvania's strict liquor laws that could put an additional $149 million in state coffers.

Although Wolf has been critical of using one-time fixes to help fund the budget, the revenue package calls for borrowing $200 million from a surplus in a state medical malpractice insurance fund, to be repaid over a five-year period starting July 1, 2018.

The House has backed a proposal that would legalize online gambling, making Pennsylvania the fourth state to do so, and expanding slots to airports and off-track betting parlors. The Senate has signaled that it will make changes to that plan.

Despite the high stakes in the budget bills, debate in the House was minimal - and in the Senate, non-existent. House members voted 116-75; the Senate passed the bill by 28-22.

The votes were largely bipartisan, but conservative House Republicans criticized the revenue package as unnecessarily whipping citizens with new taxes.

"You are about to have your pockets picked and you will be told it's for your own good," said Rep. Rick Saccone (R., Allegheny).

Rep. Daryl Metcalfe (R., Butler) even wrote his own lyrics to "Taxman" by the Beatles.

"It is an old song . . . but in 2016, still very applicable," said Metcalfe. "The attitude that led to that song is still here many years later. That attitude of 'don't ask us to be thankful that we are not taking it all.' "

Rep. Madeleine Dean, a Democrat from Montgomery County, said she chose to focus on the positive aspects of the deal, including $200 million more for K-12 public education, $30 million more for early childhood education, and $20 million for special education.

"Vote to pay for that which you have approved to spend," she urged her colleagues. "Credit agencies are paying attention - and so are our constituents."

acouloumbis@phillynews.com

717-787-5934@AngelasInk

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How the Pennsylvania Legislature plans to raise $1.3 billion to fill a revenue gap in the 2016-17 budget:

$430M

By raising the per-pack tax on cigarettes by $1 to $2.60.

$200M

By borrowing from a surplus in a state medical malpractice insurance fund.

$149M

By liberalizing the sale of wine and liquor.

$100M

By instituting a tax amnesty.

$100M

By charging fees in the legalization of internet gambling, expected in the fall.

$75M

In expected license fees from new S. Phila. casino, licensed in 2014.

$55M

By lowering the amount of sales-tax collections that retailers may keep.

$50M

By imposing a 55-cent-per-ounce tax on roll-your-own tobacco and smokeless tobacco.

$47M

By expanding the 6 percent sales tax to digital downloads.

$23M

By raising the shares tax on bank and trust companies to 0.95 percent from 0.89 percent.

$17M

By imposing a 2 percent tax on casinos' gross revenue from table games.

$16M

By extending the state income tax to Pennsylvania Lottery winnings.

$13M

By imposing a 40 percent tax on the wholesale price of electronic cigarettes, including vapor producing devices and liquid cartridges.

SOURCE: Pennsylvania House of Representatives

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