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.