Senate Appropriations Committee Report
(all tables and graphics can be viewed online)
Context Needed as February Revenue Collections Exceed Estimates
General Fund revenue collections for the month of February exceeded expectations, largely as the result of proceeds received from the securitization of $1.5 billion of Tobacco Settlement Fund (TSF) revenues. Included as part of the FY 2017-18 budget’s Official Revenue Estimate, approximately $1.25 billion was anticipated to be received from the securitization. Actual revenues received from the transaction totaled $1.5 billion, which, along with Category 4 gaming license fee and Liquor Store profit payments, resulted in non-tax revenues surpassing the monthly revenue estimate by nearly $400 million. February’s revenue performance brings the year-to-date surplus to nearly $500 million.
However, it is important to note that the FY 2017-18 Official Revenue Estimate anticipates the transfer of $200 million from the Joint Underwriting Association (JUA) to occur in June 2018. The association sued the Commonwealth in federal court to block the $200 million transfer, and it is an open question whether the issue will be resolved before fiscal year’s end. Therefore, although February’s non-tax revenues exceeded the estimate, similar non-tax revenues due in June might not be realized. The net effect is that this month’s windfall likely will be undone in June.
In addition, the enactment of federal tax reform in late 2017 resulted in early prepayments of tax liabilities in December and January that would normally be paid in the spring of 2018. These accelerated payments could depress payments received in March, April and May by approximately $100 million to $200 million, in effect largely offsetting the remaining year-to-date surplus. Nevertheless, this year’s financial position has greatly improved from one year ago when General Fund revenues were nearly $450 million below estimate.
February General Fund Revenue:
Fiscal Year 2017-18 vs. the Official Revenue Estimate To-Date:
Pennsylvania’s State Business Tax Climate Index Recedes
According to a recent study by the Tax Foundation, Pennsylvania’s State Business Tax Climate Index receded slightly to 26th for 2018 compared to other states. Bolstered by the phase-out of the capital stock & franchise tax, the Commonwealth’s business tax climate index had been steadily improving from 30th in 2015; to 28th in 2016; and to 23rd in 2017. The recent slip in the index to 26th for 2018 deserves consideration, especially as policy makers formulate decisions in reaction to the Federal Tax Cuts and Jobs Act.
The Tax Foundation rankings are based upon state tax systems as of July 1, 2017. Therefore, the index is based upon state tax systems prior to the enactment of federal tax reform in late 2017. The Wolf Administration’s decision to not only disallow 100% bonus depreciation but also to provide for no additional mechanism for cost recovery with respect to qualified property for which the federal bonus rules apply until it is either sold or disposed of can only serve to negatively affect Pennsylvania’s ranking in the future. The Senate Republican Caucus is working to mitigate the effects of the Administration’s detrimental actions as part of the FY 2018-19 budget process.
See the table online for a list of rankings.
FY 2018-19 Budget Hearings Update
Each year following the announcement of the Governor’s Executive Budget, the Senate and House Appropriations Committees hold several weeks of public hearings to review the Governor’s proposal and budget requests from state agencies. The Senate Appropriations Committee kicked off this year’s hearing process on February 20th, and hearings are scheduled to conclude with testimony from the Governor’s Budget Secretary on March 8th.
Throughout the hearings, Senate Appropriations Committee members, and the public, have the opportunity to perform a thorough review in order to learn more about the Governor’s $33.2 billion spending plan from department and row office officials. Committee members gathered more information about the approximately $300 million in new or expanded initiatives, as well as proposed policy and programmatic changes, such as the merger of the departments of Health and Human Services. As hearings draw to a close, discussions between the Senate, House and the Governor will begin in earnest to work toward a final FY 2018-19 budget deal.
Video and summaries of the hearings can be found on the Senate Republican’s website; https://www.pasenategop.com/budget-hearings-summary/.
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