The House Appropriations Committee held budget hearings last week for the Executive Offices, Office of the Budget and the Revenue Department. The PA Chamber’s Government Affairs team covered the hearings. Below are key highlights:
Federal stimulus
Lawmakers are concerned about the certainty of federal stimulus money, which the governor is relying on to fund his proposed 2010-11 state budget. Budget Secretary Mary Soderberg said that the current allotment of federal stimulus money is set to expire on Dec. 31, but noted there has been vigorous discussion about continuing the Federal Medical Assistance Percentages (FMAP) funds for the next calendar year.
FMAPs are used to determine the amount of federal matching funds for state assistance payments for certain social services, and state medical and medical insurance expenditures. The Social Security Act requires the U.S. Secretary of Health and Human Services to calculate and publish the FMAPs each year.
Soderberg said President Barrack Obama has included two full quarters of FMAPs in his budget, for a total of $850 million. She also said 42 governors have signed a letter requesting a FMAP extension. Soderberg said most states have included these funds in their budgets and they are optimistic it will be passed. However, several lawmakers expressed concerns that the governor’s budget relies too much on federal funds that might not materialize.
Public pension crisis
In responding to questions about the looming public pension crisis, Soderberg said the administration is asking for an “incremental, predictable strategy” for funding the Commonwealth’s pension obligations. She said there will be a $3.5 billion increase in contributions in 2012, and the administration is asking for a $400 to $700 million contribution each year in order to lessen the burden in the next few fiscal years.
Some lawmakers pointed out that it doesn’t make sense for the Department of Education to ask for a $350 million increase in spending when none of it will be directed toward pension obligations.
Other lawmakers expressed concerns with the governor’s plan to address the pension crisis. The administration’s budget calls for several tax increases on business, the revenues of which would be placed into a reserve account to be used in 2011-12 to meet pension obligations. The PA Chamber believes focus should be placed on addressing some of the contributing factors that helped to create the funding crisis.
Film tax credit
During the Revenue Department hearing, House Appropriations Committee Minority Chairman Bill Adolph, R-Delaware, asked Acting Revenue Secretary Dan Hassell why the Film Tax Credit is proposed to increase at a time of economic downturn and when the Education Improvement Tax Credit is being decreased.
Hassell said the education tax credits were not reduced, but fixed in the October budget.
Adolph stressed that the education tax credit has been a successful program, and said he believes that with less money available for the program, more children will attend public schools, which will place a greater strain on the system.
Combined reporting
Lawmakers also inquired about the revenue that would be generated by adopting combined reporting. Hassell said combined reporting is estimated to generate $400 million to $500 million in revenue with the current base, but noted there could be other factors in proposed legislation that could change the exact amount of revenue generated. Hassell said he is aware of the business community’s concerns with combined reporting, and expressed his desire to work with the General Assembly to make combined reporting “as painless as possible.”
State Rep. Gordon Denlinger, R-Lancaster, said contrary to the governor’s argument, under combined reporting, 60 percent of corporations would still be non-taxpayers. He cited as reference at letter from former Revenue Secretary Thomas Wolf. Hassell said the number of non-taxpayers would go down, even if slightly. However, upon further questioning from Denlinger, Hassell said he did not have an updated list of active C-corporations in the Commonwealth.
Article courtesy of the Pennsylvania Chamber of Business & Industry
