Governor Corbett’s 2013-2014 Budget
and The Department of Revenue
Dan Meuser
Secretary of Revenue
Governor Corbett’s Mission
Three primary goals for the commonwealth:
1. A stable and reliable financial future
2. A job available for every Pennsylvanian that wants one
3. A trained and educated workforce ready for the jobs of today
and tomorrow
…Helping all Pennsylvania Families
• 100 percent bonus depreciation
• Restarted capital stock/foreign franchise tax phase-out
• Job creation tax credit programs
• Property tax reform
• Tort and regulatory reform
• E-commerce fairness
• Appeals reform
• Inheritance tax relief for farmers
• 100 percent single sales factor
• Unemployment compensation reform
• PRM tax credit
• Energy – jobs proposal
Tax Reform in Gov. Corbett’s First 2 Years
Impact of Marcellus Shale
Workforce Impact
Jobs
29,810 employed in core industries (first quarter of 2012)
177 percent increase since the first quarter of 2009
204,201 employed in ancillary industries (first quarter of 2012)
Increase of 7.2 percent since the first quarter of 2009
150,616 new hires from the fourth quarter of 2009 to the second quarter of
2012
Revenue
Total corporate business taxes – $303 million in 2012
Added funding from impact fees total $206 million
Job Growth In Gov. Corbett’s First Two Years
Pennsylvania Jobs
Private Sector Jobs:
• Up 38,900 over the last year
• Up 105,900 since Gov. Corbett took office
Manufacturing Jobs
• Up 5,500 over the last year
• Up 8,000 since Gov. Corbett took office
Public/Government Jobs
• Down 200 over the last year
• Down 21,000 since Gov. Corbett took office
Labor Force
• In December of 2012 the Pennsylvania labor force reached an all time high of 6,559,000
• The labor force has increased by 159,000 since January of 2011
• Labor force growth is an indicator that only have Pennsylvanians found jobs, but also
Pennsylvania’s unemployed have a renewed faith in the economy and are looking for jobs
once again.
Ohio labor force was reduced by 70,000 workers. Pennsylvania is increasing it’s workforce by over 100,000.
Fiscal
Year Actual Estimate Deficit/Surplus %
2006-07 27,449.30 26,799.50 649.8 2.4%
2007-08 27,928.10 27,760.60 167.5 0.6%
2008-09 25,529.80 28,784.40 -3,254.60 -11.3%
2009-10 27,648.20 28,824.70 -1,176.50 -4.1%
2010-11 27,497.20 26,711.70 785.5 2.9%
2011-12 27,678.00 27,840.8 -162.8 -0.6%
2012-13 28,590.00 232* 0.8%*
2013-14 29,204.40
*Estimated
(in millions)
General Fund: Collections Compared to Estimate
2013-14 General Fund Revenue Sources
Personal Income
Tax, 40.2%
Sales and Use Tax,
32.0%
Corporate Net
Income Tax / Capital
Stock and Franchise
Tax, 9.6%
Gross Receipts Tax,
4.4%
Cigarette Tax, 3.5%
Non-Tax Revenues,
1.8% Other Taxes,
8.5%
Nearly three-quarters
(72 percent) of
General Fund
revenues are derived
from the Personal
Income Tax and the
Sales and Use Tax.
2013-14 General Fund Budget - $28.4 Billion
Pre K-12 Education
$9.55 B
33.6%
Medical Assistance
and Long-term
Living
$6.49 B
22.8%
Higher Education
$1.81 B
Corrections/
Probation and
Parole
$2.07 B
Debt Service
$1.20 B
All Other
$2.84 B
10.0% 4.2%
7.3%
6.4%
Spending on Education,
Human Service
programs, Corrections
and Debt Service
comprises 90 percent of
total General Fund
obligations.
Other Human
Services
$4.48 B
15.7%
2013-14 Budget Highlights
• Governor Corbett’s plan provides a balanced budget that keeps
spending in line with available revenues and does not raise taxes on
Pennsylvania families and businesses.
• Spends $28.4 billion – 2.4 percent increase over FY 2012-13.
• Major reform initiatives:
– Sell the state liquor system to invest in education
– Modernize Pennsylvania’s transportation infrastructure
– Overhaul the state pension systems
– Comprehensive tax reform
• Enhanced support for basic education, public safety, older
Pennsylvanians, and individuals with disabilities.
Pennsylvania is Open for Business
Governor Corbett, in partnership with the business community, will create a more
competitive tax structure in PA through the following:
• Elimination of the capital stock/foreign franchise tax
• Reduction the corporate net income tax
• Increasing the cap on net operating loss deductions
• Providing for like-kind exchanges and start-up business deductions
• Repeal of the corporate loans tax
• Implementation of sales factor market sourcing
• Tax code changes to level the playing field and provide for fair and equitable tax
policy
• Repeal of nuisance taxes and obsolete taxation and administrative provisions
IMPACT: 18,000 more jobs over the next 10 years; state GDP increases $2.8
billion by 2030; personal income grows by $1.9 billion by 2030
More than $1 billion in new tax revenue through 2030.
Divesting From the Government Controlled State Liquor System
Divest of the retail and wholesale functions in a two-step, four-year process
• End state run monopoly and invest in schools
• The Plan:
• Remove government and give to the private sector
• Convenience for Pennsylvanians
• Private sector and market place set price and locations
• Revenue neutrality
• Government and LCB’s role will be regulation
• Protection for current employees
• One time funding of $1 billion for schools
“Selling liquor is not a core function
of government; education is.” – Governor Tom Corbett
Investing in Transportation Infrastructure
Proposed reforms include:
• Reduction of the flat liquid fuels tax by one cent in 2013-14 (starting
July 1, 2013) and another reduction of one cent in 2014-15 (starting
July 1, 2014). This will reduce the liquid fuels tax from 12 cents to
10 cents, a 17 percent reduction.
• Uncapping of the average wholesale price used to calculate the oil
company franchise tax over five years – one-third uncapping on
July 1, 2013, January 1, 2015 and January 1, 2017 (fully uncapped).
• Transition vehicle registration renewals to a biennial cycle beginning
July 1, 2014.
• Transition driver license renewals to a six-year
cycle beginning July 1, 2014.
The budget proposes $5.4 billion in funding over five years to address the needs of
Pennsylvania’s aging and fragile transportation infrastructure.
Investing in Transportation Infrastructure
Transportation Mode Investment
Year 1 (est.)
Investment
Year 5 (est.)
State Roads and Bridges $300 million $1.2 billion
Public Transportation $40 million $250 million
Local Roads and Bridges $80 million $200 million
PA Turnpike Expansion
Projects $30 million $85 million
Multi-Modal Fund $60 million $80 million
TOTAL $510 million $1.8 billion
Investment Component*
*Based on the current wholesale value of gas.
Pension Realities
Collar Adjustment Plus Changes to New and Current Employees
Pension Reform
New Employees enrolled in a 401(a) defined contribution plan
Current Employees – Changes to Future Service Only
• Actuarially adjusted future monthly payments for employees who withdraw
pension contributions at retirement
• Today negligible adjustments to pension payments when withdrawn are taken
• Redefined final salary (average of last five years)
• For the highest three years
• Future pension benefits to be calculated with a lower multiplier (.5 lower)
• From 2.5 to 2.0 for most state employees
• Current employees may choose the higher multiplier through increased
contributions
Tapered Pension Collars – reducing annual employer contribution from 4.5 percent to
2.25 percent for 2013-14 (resumes to 4.5 percent over time)
• $175 million in General Fund savings between SERS and PSERS
• $138 million in savings for school districts and other local education agencies
No Changes
• Current retiree benefits
• Benefits already earned by current employees
Pension Reform
• In 2001, pensions were raised by 50 percent for legislators and 25 percent for state/school employees.
• Benefits accrued can not be rolled back, but there is nothing preventing rolled back rates from applying to benefits that will be accrued in the future.
Education Innovation in Pennsylvania
Increased Basic Education Funding: $5.5 billion for Basic Education
Funding – including a $90 million increase – to support local school districts,
the highest level of basic education funding in state history.
Investments in Early Childhood Education • Pre-K Counts – an increase of $4.5 million, or 5.4 percent, to serve 580
additional children in proven pre-kindergarten programs.
• Head Start Supplemental Assistance – an increase of $1.9 million, or 5.1
percent, to serve 210 additional children.
• Early Intervention – an increase of $5 million, or 2.3 percent to provide
services to 1,500 additional children from ages 3 through 5.
Higher Education • Level funding for the State System of Higher Education, State-Related
Universities, Community Colleges, and Thaddeus Stevens and
Pennsylvania Colleges of Technology.
• Level funding for Grants to Students and PHEAA
Health, Human Services & Public Safety
Expanded Services for Individuals with Disabilities: attendant care services for
individuals and home- and community-based services for individuals with intellectual
disabilities, individuals in state mental hospitals and state intellectual disabilities
centers, adults with autism spectrum disorders and through Medicaid waiver programs
Increased Access to Health Care: access to CHIP coverage for 9,330 more children;
community-based health care subsidiaries for clinics serving the uninsured or
underserved areas of PA; funding for health care professionals committed to working
in underserved areas of the state; modernized state health care centers
Human Services Reform: expand human services block grant state-wide; improved
quality and access to child care; funding increases to rape and domestic violence
programs; juvenile justice reinvestment
Enhanced Public Safety: three new PSP cadet classes; 90 more troopers on patrol
when equal number of civilian police communication operators are hired; 35 additional
parole agents; cost savings and improved capacity and safety with opening of Benner
State Correctional Institute
Lottery Private Management Agreement
• Population of older Pennsylvanians growth exceeds that of Lottery
funded growth
• The plan is to hire a business growth manager for the Lottery
• We are not selling the Lottery
• Federal and state laws forbids
• Lottery currently has many multi-million dollar contracts with private
firms
• None of these private contracts are performance based, this agreement is.
• $200 million security provided upfront by the winner bidder downside protection to the commonwealth.
• $1.3 billion incremental growth in funding for program benefiting older
Pennsylvanians, exceeding Lottery’s own dynamic estimate over the next ten years
Department of Revenue Priorities for 2013
1. Improve customer service and build trust with all stakeholders.
2. Create efficiencies, reduce redundancies, lower costs and improve
productivity.
3. Enhance the equitable collection of taxes due, through clarity of
compliance, education of tax obligations, and leveraging
technology, data and information so as to enforce the tax laws
equally for all taxpayers.
4. Align Revenue’s initiatives with the priorities of the Governor.
5. Attract, develop and retain skilled and motivated employees by
fostering job satisfaction and creating a productive work
environment.