By Pennsylvania state Sen. Pat Browne, 16th Senatorial District, Senate Majority Appropriations Chairman
When we look back two years ago at the start of the worst pandemic in our history, no one could have envisioned that now, not only would we be through the worst of that crisis, but the Commonwealth would be in the positive financial position it is today.
Part of the reason for our current position is the financially responsible work of the General Assembly over the past two years working with Governor Wolf in budgeting through the pandemic and recovery. During this challenging period, we collectively limited spending growth, managed billions of dollars in federal relief support and still provided recurring state resources for critical programs and services.
The other more compelling part is the resolve our citizens have shown in confronting the pandemic and mustering the strength to not only survive the health challenges but also to forge ahead with their spending and investments in the Commonwealth despite the obstacles. Honoring the determination of our fellow citizens, this budget sets the stage for Pennsylvania’s bright future by focusing on commitments we made in developing a responsible spending plan.
The first commitment is to the continued investment in our Commonwealth’s most important asset – our preschool and school-age children. The budget includes historic increases of $850 million in the K-12 education system including $525 million through the Basic Education Commission Funding Formula and $225 million in a base supplement to support the 100 school districts with the lowest local wealth and revenue capacity. The budget also includes increases of $100 million for Special Education funding, $200 million for School Safety and Security, $60 million for Pre-K Counts and $19 million for Head Start, as well as an additional $125 million in tax credits for scholarships under the Educational Improvement Tax Credit (EITC) program.
While there were sustainability concerns expressed regarding education funding appropriations above any previous year’s levels, the adopted increases were made with the charge of greater equity in education finance for our most challenged districts and necessary supports for our most at risk children. This will lead to the proficiency of all our students at all levels of education, which is necessary for the Commonwealth’s future economic wellbeing.
The second commitment acknowledges the importance our job creators and working families play to Pennsylvania’s future. Critical changes to the state’s tax structure start with the plan for a phased reduction of the Corporate Net Income tax rate from 9.99% to 4.99% by 2031. Additional changes include allowing proprietors more flexibility in their real estate holdings through taxable gain deferrals on like-kind exchanges and providing historic new tax incentives to grow and invest in the Commonwealth. Annual tax deductions for capital investment by small business increases from $25,000 per year to over $1 million per year. Finally, the budget creates a Pennsylvania Child Care Tax Credit to help working families pay for services and avoid losing access to benefits due to incremental increases in income. These changes will make Pennsylvania’s overall individual and business tax structure the most cost-effective in the Northeast and boost the Commonwealth into the class of most competitive in the nation.
The third commitment is to ensure the Commonwealth’s stable financial footing moving forward. This is accomplished by transferring $2.1 billion to the state’s reserve account, called the Rainy Day Fund. Before committing nearly $5 billion to the fund over the last two budget cycles, Pennsylvania was poorly positioned to anticipate an inevitable future slowdown in our economy. These deposits bring Pennsylvania in line with state median reserve balances, mitigate the need for future rollback on important investments and will lead to probable improvement in Pennsylvania’s bond rating.
In addition to these three important commitments is the allocation of the remaining $2.2 billion in federal ARPA funding to address COVID-19 related impacts. We originally expected that the remaining federal resources would be needed to offset revenue loss from the economic results of the pandemic. However, due to the Commonwealth’s strong economic performance, this funding was no longer eligible for revenue replacement and has been allocated to strengthen important programs and sectors as a down payment in Pennsylvania’s future. Systems and programs receiving significant support include long-term living, housing, childcare, water systems, environmental stewardship, senior property tax rebates, law enforcement and gun violence and arts and cultural assets.
These new responsible investments, a 2.9% increase over the 2021-22 fiscal cycle when supplemental and federal stimulus spending are included, maintain our commitment to long-term fiscal stewardship. Furthermore, the significant deposit to our Rainy Day Fund and the recalibration to timelier human service payment cycles allow the Commonwealth to close the federal stimulus funding period at the end of 2024 with a forecasted positive financial position. This will allow Pennsylvania to continue the longest sustained period of fiscal balance in a generation.