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Senator Pat Browne

Senate Appropriations Committee Report
January 2017

Committee Website


Inside this Edition

  • Farmland Preservation
  • Unconventional Gas Production Update
  • Unemployment Numbers
  • December 2016 Revenue Estimate vs Actual
  • Monthly Revenue Detail

Where We Are In the Annual Budget Process

The Governor’s Budget Office is making final adjustments to the Governor’s FY 2017-18 spending plan and has begun production of the Governor’s Executive Budget document. In the coming weeks, the Administration will develop related press releases and other briefing materials for the Governor’s February 7th budget address.


Administration Presents Mid-Year Budget Briefing

Senate Appropriations

On December 14, Budget Secretary Randy Albright presented the Wolf Administration’s mid-year budget briefing to members of the General Assembly. Required by statute, the briefing is intended to provide an update of revenue and spending performance for the fiscal year-to-date and a revised projection through the end of the year. During the briefing, Secretary Albright revealed the current fiscal year is likely to close with a deficit of nearly $604 million.

The deficit is due to a projected $422.7 million revenue shortfall and $181.1 million in over-spending. Secretary Albright noted that revenue collections through November were $261.8 million below projection and that major leading economic indicators, such as growth in Gross Domestic Product (GDP), consumer spending and personal income, had declined since June 2016. Through December, the revenue shortfall has now increased to $367 million.

Secretary Albright also noted that spending would be higher than enacted levels of $31.5 billion. Of the $181.1 million in over-spending, approximately $170 million is due to Human Services spending, with the remainder due to higher-than-anticipated borrowing costs for the Commonwealth’s cash flow loan which is currently $2.2 billion.

While Secretary Albright did not provide an estimate for FY 2017-18, a November projection from the Independent Fiscal Office indicated the deficit will persist. In media briefings released after Secretary Albright’s mid-year budget briefing, Governor Wolf indicated he will first implement cost-cutting measures to close any budget gap before considering revenue increases and, if revenue increases are necessary, he will not use broad-based revenue increases to balance the budget. Governor Wolf is scheduled to release his FY 2017-18 budget on February 7.


Global Insight's Economic Outlook

 

Real GDP Growth

U.S. Consumer Expenditures

U.S. Personal Income Growth

 

June 2016
Estimate

November 2016
Estimate

June 2016
Estimate

November 2016
Estimate

June 2016
Estimate

November 2016
Estimate

2016

1.9%

1.5%

2.8%

2.6%

4.2%

3.3%

2017

2.6%

2.2%

2.7%

2.5%

4.8%

4.3%

2018

2.6%

2.2%

2.6%

2.5%

5.1%

4.9%


Investment in Farmland Preservation

Senate Appropriations
The Pennsylvania Farmland Preservation Program was created to help strengthen Pennsylvania's agricultural economy and permanently protect quality farmland. The program enables the purchase of conservation easements from farmers and prevents development or improvements of the land for purposes other than agricultural production.

The program was approved by the Legislature in 1988. As of December 2016, 5,045 farms have been preserved through the program totaling more than 528,656 acres in 58 of the Commonwealth’s 67 counties. The chart below depicts the number of farms and acres preserved under the program by county.

The State provides funding for the program through annual transfers of cigarette tax revenues and Environmental Stewardship Fund monies. In FY 2016-17, $36.2 million is estimated to be transferred for the program, $25.5 million from cigarette tax revenues and $10.7 million from Environmental Stewardship Fund monies. This funding level represents an increase of $5 million over the FY 2015-16 funding level.

Since the inception of the program, $1.487 billion in total has been invested to preserve farmland in Pennsylvania. The pie chart above depicts total invested by source of funding since the inception of the program.

Over the last year, unconventional natural gas production in Pennsylvania has remained relatively constant, ranging from 432.7 billion cubic feet in January to 407.7 billion cubic feet in October. The relatively small decline of six percent in production could be attributed to a general decline in productivity as wells mature which has not been offset by newer, higher-producing wells.

The decline in the number of newly drilled wells continues a trend that is the result of suppressed gas prices in Pennsylvania’s spot markets. Last year’s average NYMEX price was $2.46, compared to Pennsylvania’s average spot price of $1.57.

While the low price of natural gas has reduced the demand for new drilling, it has also reduced the amount of revenue the Commonwealth receives in the Oil and Gas Lease Fund because royalty revenues are tied to the spot price. For the first six months of FY 2014-15, the Commonwealth received $64.7 million in royalty revenue from gas production on the state’s forest lands. Over the same timeframe in FY 2015-16, that revenue dropped by more than 50% to $31.1 million. This year, royalty revenues have recovered somewhat to $36.7 million but still remain 45% below FY 2014-15 levels. Because the Commonwealth relies on gas royalty revenue to fund a significant portion of the Department of Conservation and Natural Resources’ (DCNR) operations, the Commonwealth needed to increase annual General Fund appropriations to DCNR by more than $90 million since FY 2014-15.

Senate Appropriations

Unconventional Gas Production Update

Senate Appropriations
Over the last year, unconventional natural gas production in Pennsylvania has remained relatively constant, ranging from 432.7 billion cubic feet in January to 407.7 billion cubic feet in October. The relatively small decline of six percent in production could be attributed to a general decline in productivity as wells mature which has not been offset by newer, higher-producing wells.

The decline in the number of newly drilled wells continues a trend that is the result of suppressed gas prices in Pennsylvania’s spot markets. Last year’s average NYMEX price was $2.46, compared to Pennsylvania’s average spot price of $1.57.

While the low price of natural gas has reduced the demand for new drilling, it has also reduced the amount of revenue the Commonwealth receives in the Oil and Gas Lease Fund because royalty revenues are tied to the spot price. For the first six months of FY 2014-15, the Commonwealth received $64.7 million in royalty revenue from gas production on the state’s forest lands. Over the same timeframe in FY 2015-16, that revenue dropped by more than 50% to $31.1 million. This year, royalty revenues have recovered somewhat to $36.7 million but still remain 45% below FY 2014-15 levels. Because the Commonwealth relies on gas royalty revenue to fund a significant portion of the Department of Conservation and Natural Resources’ (DCNR) operations, the Commonwealth needed to increase annual General Fund appropriations to DCNR by more than $90 million since FY 2014-15.


Revenues Come Up Short of Projections for Month of December

Senate Appropriations

General Fund revenue collections for the month ended December 2016 totaled $2.6 billion, which was $105.2 million, or 3.9%, below estimate for the month. Final year-to-date collections total$13.5 billion, which is $367.0 million, or 2.7%, below estimate for the year.

Senate Appropriations

 


**In Thousands

December 2016 Estimate

December 2016 Actual

Over/Under
Estimate

Fiscal Year-to-
Date Estimate

Fiscal Year-to-
Date Actual

Over/Under
Estimate

Corporation Tax

$510,200

$466,722

$43.5 million or 8.5%

$1,374,400

$1,273,899

$100.5 million or 7.3%
Sales & Use Tax (SUT)

$851,900

$840,776

$11.1 million or 1.3%

$5,114,000

$4,980,706

$133.3 million or 2.6%
Personal Income Tax (PIT)

$1,007,100

$961,351

$44.7 million or 4.4%

$5,559,800

$5,433,902

$125.9 million or 2.3%
Cigarette Tax

$128,200

$118,409

$9.8 million or 7.6%

$681,300

$653,314

$28 million or 4.1%
Other Tobacco Products

$2,100

$4,497

$2.4 million or 114.3%

$2,100

$5,353

$3.3 million or 157.1%
Liquor Tax

$45,900

$46,684

$784,000 or 1.7%

$195,400

$193,314

$2.1 million or 1.2%
Realty Transfer Tax (RTT)

$51,600

$44,896

$6.7 million or 13.0%

$278,900

$244,216

$34.7 million or 12.4%
Inheritance Tax

$80,800

$84,547

$3.7 million or 4.5%

$463,700

$452,955

$10.7 million or 2.3%
Non-Tax Revenues

$32,000

$37,248

$5.2 million or 16.3%

$92,600

$146,981

$54.4 million or 58.8%
Senate Appropriations


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