An Overview of the 2007-2008 State Budget

On February 6, Gov. Ed Rendell presented his 2007-2008 state budget to the General Assembly.  As reported across the state, this has proved to be a very aggressive budget with several programmatic proposals that address health care ( Cover All Pennsylvanians), transportation funding, alternative energy, property tax relief, and hazardous sites cleanup. To generate revenue for these programs and the General Fund, there are several proposed taxes: 1% sales and use tax increase, 3% "fair share" assessment on employers' payroll for the health care plan, increased cigarette tax and a new tax on smokeless tobacco/cigars, trash tax, and an electric tax.

To help put the budget and these issues in a framework, we would like to explain the budget process to our members and provide more details on the proposed programs.

The Budget Process : The Fiscal Year begins on July 1 and preparation for the next fiscal year budget begins every August. Agencies submit budget requests in August to the Office of the Budget. This department reviews requests through January with the Governor.  During this review, all agency budget requests and programs are evaluated to see if there is existing revenue to fund these areas or if a new revenue source is needed through taxes or fees.

The Governor makes his final decision on the budget based on these requests and vision for the state, and submits it to the General Assembly in February in an annual Budget Address. After the legislature receives the budget, the House and Senate Appropriations Committees convene to evaluate the budget and agency requests with department heads.  This gives the legislature an opportunity to gather more information and specific details on aspects of the budget and proposed programs (or the performance of current initiatives).

The budget is then drafted into a bill like all other legislative action. Any program that is presented in the budget, i.e. Cover All Pennsylvanians, must also be introduced in legislative form.  From this point until passage, these bills are debated on the floor and reviewed in committee.

Once the budget is passed, agencies must implement programs and funds. After the Fiscal Year, there is also an audit of financial and program performance.

More details on this process are available on the Office of the Budget's website at www.budget.state.pa.us/budget/lib/budget/budgetprocess/index.htm.

The current budget for Pennsylvania is for $27.3 billion (the total operating budget is $59.1 billion), with a 3.6% increase in state funding.  Most of this increased spending from the General Fund is for education.

A few highlights of the proposed budget are as follows:

• Property Tax Relief is an issue that will be revisited this year. Gov. Rendell wants to accelerate relief for 2007-2008.
• Cover All Pennsylvanians, Gov. Rendell's health care proposal contains about 47 individual components.  The goal of the program is to cover 767,000 currently uninsured Pennsylvanians by replacing the current adultBasic program. The most controversial part of this proposal is the 3% “fair share” assessment of payroll on businesses that do not provide health care to employees.

We are still waiting for details of this proposal in legislative form to have a better understanding of the program in its entirety.  Some additional components in the plan include disease management/wellness promotion programs, improving health literacy, long-term care, requirement of students in higher education to have health care (possibly providing coverage under their parents until age 30), providing more health care services for non-emergencies 24 hours a day/7 days a week, and the prohibition of smoking in public places. 

Proposed funding sources include Tobacco Settlement/Community Health Reinvestment state funds, federal Medicaid funds, individual and employer enrollees, fair share assessment of 3% on employers, an increased cigarette tax, and introduced smokeless tobacco tax.

• Transportation funding is needed for the state's highways, bridges, and mass transit. There is an estimated $1.7 billion needed ($965 million for highways and bridges and $760 million for mass transit). To address these funding issues, a variety of options were proposed.  For mass transit funding, an increased Realty Transfer Tax (between 0.5%-0.9%), 25% local government contributions, increased PennDOT fees, increased sales and use tax, tolling Interstates in Pennsylvania, and an Oil Company Gross Profits Tax are listed as options to generate revenue.

For highway/bridge funding, an Oil Company Franchise Tax equal to 12.5¢/gallon, increased PennDOT fees, and leasing the Pennsylvania Turnpike were possibilities to generate revenue.

Currently, Gov. Rendell supports the Oil Company Gross Profits Tax and leveraging the Turnpike as the means to solve these funding issues.  The Oil Company Gross Profits Tax is a difficult issue based on the Constitutionality of focusing on a few specific companies.  It is also unclear whether the Attorney General's office has the power our staff resources to monitor that consumers do not have a cost passed on to them at gas pumps as included in this proposal.  The leasing of the Turnpike is being carefully reviewed to determine if it is in the Commonwealth's best interests to lease major infrastructure and that any dollars gained through leasing the Turnpike would be used to their maximum potential and for its intended purpose.

• The Energy Independence Fund is meant to help Pennsylvanians use renewable energy (biofuels, solar energy, clean coal technology, etc.) and gain independence from oil as a source of energy. In this proposal, there would be a $0.0005 per kilowatt-hour tax on electricity used (estimated additional $0.45 per month on consumer bills) to help fund this initiative along with bonds.
• The Jonas Salk Legacy Fund is reintroduced in this year's budget.  This program would accelerate $500 million for bioscience research.

• There is also a proposed $2.25 per ton fee on the disposal of municipal solid waste for the Hazardous Sites Cleanup Fund and a $0.50 per ton increase to the municipal solid waste disposal fee dedicated to the Environmental Stewardship Fund.  Funding for the Hazardous Site Cleanup Fund is currently expected to expire this year without the injection of additional funding.

• The Capital Stock and Franchise Tax (CSFT) will continue to be phased out as originally scheduled.  The tax should be eliminated by 2011. Education Improvement Tax Credits (EITC) could also be increased to $1.4 million.

More information is available on Pennsylvania 's budget at www.budget.state.pa.us/budget.

Governor Announces Major Health Care Proposal

On January 17, Governor Edward G. Rendell held a press conference to announce a package of health care proposals for Pennsylvania.  This plan, Prescription for Pennsylvania, includes several proposed concepts that are very important to the business community.  Major points in this proposal are as follows:

• The expansion of health care coverage for all Pennsylvanians.  The Cover All Pennsylvanians ( CAP) program will be open to businesses that have not offered health care for their employees in the last 6 months, employ fewer than 50 employees, and employees that earn less that $39,000
• Businesses that opt into this program will pay $130/month per employee and employees will pay on a sliding scale of $10/month to $70/month
• Companies that do not offer health care coverage and do not opt into the CAP program, will be assessed 3% of their payroll to the state
• Promote behavioral changes that include disease management, prudent use of emergency rooms, prohibition of smoking in public places, encourage wellness promotion in kindergarten through 12 th grade students, and require health care coverage for students enrolled in higher education institutions
• Form policy changes for health care professionals that allow nurse practitioners to be more involved in patient care, reform the use of health information technology, educate and encourage the use of generic prescription drugs, and reduce hospital-acquired infections
• This proposal will be funded through an increase in the cigarette tax, begin taxing smokeless tobacco products and cigars, use federal matching funds, and redirect existing funds for adultBasic and uncompensated care

More details on this proposal will be announced in Gov. Rendell’s budget address on February 6.  Please check back on our website for more information following his announcement.  If you would like to learn more about the current proposal, please visit the Governor’s Office of Health Care Reform website.