Pennsylvania Senate approves higher taxes to balance budget

July 27, 2017 GMT

HARRISBURG, Pa. (AP) — The Pennsylvania Senate on Thursday approved a plan to eliminate a $2.2 billion budget deficit that includes heavy borrowing and hundreds of millions of dollars in tax increases, including on Marcellus Shale gas drilling, consumers’ utility bills and online purchases.

Floor votes came barely 14 hours after Republicans who control the chamber first unveiled their plan to balance the $32 billion state budget late Wednesday. It includes a proposal to borrow $1.3 billion against Pennsylvania’s annual share of the 1998 multistate settlement with tobacco companies, an approach rejected by their GOP counterparts in the House just last week. States typically borrow to prop up current spending only as a last resort.

Senators approved the main revenue bill in the package, 26-24, and it drew bipartisan support, including from Democratic Gov. Tom Wolf. It faces an uncertain future in the House, where majority Republicans are likely to resist calls for higher taxes to help close the budget deficit.

House members will have “questions and concerns” about the Senate plan, House GOP spokesman Stephen Miskin said Thursday. He said the Senate plan was not shared with or agreed to by House leaders prior to passage, “so a review of what’s actually in these bills is necessary.” Miskin said there’s no timetable for the House to take up the legislation.

Ahead of the decisive vote, Senate Majority Leader Jake Corman, R-Centre, urged passage, saying lawmakers had held the line on new taxes as long as they could, but simply needed more revenue to avoid a freeze on some government spending.

“We came here to make tough choices,” he said on the Senate floor Thursday.

Sen. Scott Wagner, R-York, who is running for the GOP nomination to challenge Wolf in next year’s election, blasted the legislation’s tax increases on “hard-working Pennsylvanians” and said state agencies are wasting money.

“The only winner is the beast that is state government,” he said.

The legislation includes a severance tax on natural gas drilling that Corman said would generate about $100 million per year. Gas drillers would continue to pay an existing impact fee that is split by the state government and communities in the Marcellus Shale natural gas fields.

Wolf campaigned for governor in 2014 on a promise to impose a severance tax on shale drilling, but energy companies have long objected to it, saying it would harm the state’s competitiveness. Pennsylvania is the nation’s No. 2 gas-producing state after Texas.

Hoping to make it more palatable to industry, the Senate approved concessions on state environmental permitting rules — which outraged environmentalists while doing little to appease the drillers.

David Spigelmyer, president of the Marcellus Shale Coalition, an industry group, warned the severance tax would hurt Pennsylvania’s competitive advantage and cost “family sustaining Pennsylvania jobs.” Environmental advocates complained the bill guts the Department of Environmental Protection’s ability to regulate polluting industries and should be challenged in court.

Consumers, not gas drillers, would bear the brunt of the Senate’s taxes.

The revenue package includes $405 million in new or higher taxes from a gross receipts tax on natural gas, electric and telecommunications bills.

The new tax on natural gas bills would be 5.7 percent, or $5.70 on a $100 utility bill. The existing tax on electric bills would rise by more than a half-percent to 6.5 percent, while the tax on phone bills would increase by 1 percent, to 6 percent.

GOP senators hope to raise another $43.5 million by requiring online marketplaces like Amazon and eBay to collect sales tax from third-party sellers using their sites. The Senate plan also counts on $200 million in revenue from another massive expansion of casino-style gambling in Pennsylvania, the nation’s No.2 commercial gambling state, but it hasn’t been approved and is still the subject of a disagreement with the House.

And it pushes Wolf to squeeze Medicaid eligibility and benefits.

Wolf’s administration could not immediately say whether it supported the changes to Medicaid and environmental permitting.

House Republicans met last week but failed to agree on a plan to close the budget deficit, rejecting a no-new-taxes proposal that would have combined $1.5 billion in borrowing with hundreds of millions of dollars siphoned from programs not included in the state budget.

That left it to the Senate.

“It’s not what I want, it’s not perfect, but I recognize that there are things we have to do as leaders and individuals to try to reach a compromise,” said Senate Democratic Leader Jay Costa, D-Allegheny.

Pennsylvania risks a credit downgrade if it doesn’t balance the budget, which would increase its borrowing costs. It could also force Wolf to freeze some government spending, potentially affecting schools, grant programs, tax credits and counties that administer social service programs.


Associated Press writer Marc Levy contributed to this story from New York.