Corbett unveils budget proposal

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HARRISBURG -- After two years of offering stark budget plans for Pennsylvania state government, Gov. Tom Corbett is proposing to spend an additional $600 million in the upcoming fiscal year.

The $28.4 billion budget package released this morning includes more help for public schools, with $90 million to boost their basic subsidies and $224 million more to cover increasing retirement costs for district employees.

More dollars also will go toward programs for older Pennsylvanians, training of additional state troopers, help for those with intellectual disabilities, and support to communities like Moon that are fighting to keep military bases from closing.

Like in his past two budgets, the Republican governor is keeping to his campaign pledge and not proposing any tax increases.

Mr. Corbett's optimistic plan counts on carrying over more than half a billion dollars from the current fiscal year, as well as major changes to liquor sales and how the state retirement systems work.

The Corbett administration says dramatic policy changes it has proposed are necessary in order to keep the state on the road to financial recovery.

"Now is not the time to be timid in our approach," Mr. Corbett told the packed chamber of lawmakers, staffers and guests. "Now is not the time to cling to old ideas and the status quo. Now is not the time to make small changes and expect big results."

A chorus of protesters waiting in the hallway outside where Budget Secretary Charles Zogby held a morning briefing for reporters disagreed, chanting as they walked through the hallway with buttons that read, "Gov. Corbett, whose side are you on?"

Mr. Corbett kicked off his budget remarks by highlighting a major success from the past year, keeping the Philadelphia-area refineries operating. He read a letter from a local business owner who said his restaurant would have been devastated if the refineries had closed.

As expected, the University of Pittsburgh, Penn State, the State System of Higher Education, and state community colleges will receive the same funding as in the current year's spending plan. Also maintained from this year will be $345 million in state grants to college students.

There's good news as well for business leaders, who would see a tax on business assets fully eliminated by 2014, the beginning of a reduction in the corporate net income tax, and a cap on operating losses lifted under Mr. Corbett's proposal.

The Republican governor's long-awaited plan for maintaining the state's ailing transportation infrastructure would raise $510 million in the first year and $5.3 billion over five years, primarily by lifting a cap on a levy on wholesale fuel prices.

That transportation plan also involves redirecting certain motor vehicle fees to public transit and multimodal programs, such as railroads and ports.

The big change for drivers would be switching vehicle registration renewals to every two years instead of annually, and driver's license renewals to every six years instead of every four. The cost to drivers would remain the same.

One of the biggest debates during the five months until the annual budget deadline will be over his proposal for reworking the state's retirement program.

Mr. Corbett has said that rising state contributions to employee retirement plans will force the government to choose between changing the systems and deducting the increase in its obligations from funding for other programs.

Citing the current unfunded liability in the Public Schools Employee Retirement System and the State Employees Retirement System plans at a current $41 billion and noting the debt will grow to $65 billion in several years, the governor said drastic steps must be made to stop growing debt.

The debt is pushing state and employer, school district, contributions up drastically, often prompting tax hikes at the local level. The current projected contribution rate for 2013-2014 is 16.93 percent.

The two-pronged plan would siphon new hires into a 401(k)-style plan -- known as a 401(a) account -- while reducing the future benefits of current workers.

Switching new hires to a defined-contribution plan has support from Senate Republican leaders. Mr. Corbett's proposal would require new workers to contribute at least 6.25 percent of their salary.

Changing benefits for current workers is expected to spur significantly more controversy. Union leaders say such a plan violates Pennsylvania case law, and some Republican legislators have said that appears to be the case.

The governor's plan would reduce future benefits for current employees by lowering the multiplier used to calculate what a retiree receives, unless the workers chooses to make higher contributions. It would restructure a so-called "collar" to reduce the increase in employer contribution rates to 2.25 percent next year and then raise the cap by 0.5 percent per year until it reaches 4.5 percent or the annual contribution rate.

Another proposal is to remove from teachers' total compensation calculated for retirement, the stipends they are paid for supervising extra-curricular activities.

The proposed reduction in the required state payment for state employee and public-school systems are estimated to save the commonwealth $175 million in the upcoming fiscal year.

There are no proposed changes for current retirees or to benefits already earned by current employees.

State labor unions, including the Pennsylvania State Education Association, the state's largest teachers union, have vowed to take legal action against the state if any changes are made to the plans for current employees. The governor needs the approval of the state legislature to carry out the proposals.

Some of the proposed changes are similar to those included in Act 120 of 2010, which imposed the changes on employees who started into the system as of Jan. 1, 2011.

His proposal for privatizing the state liquor stores drew a round of applause from the chamber. And on public pensions, he said tweaking future benefits for current workers will help ensure the solvency of public retirement systems and "a worry-free retirement" for all employees.

"The longer we wait the more disruptive the solution will become," Mr. Corbett said. "Let us act now. With some imagination and some cooperation, we can find a way to preserve our existing pensions and allow the next generation of state employees and teachers a chance to shape their futures."

The governor described public education as entering "an era of transformation," before highlighting his plan to boost funding for basic and early education, make learning plans more flexible, and allocate dollars for school-safety programs.

Education funding would see an increase in the proposal. Basic education would receive an additional $90 million, or 1.7 percent. Funding for two pre-kindergarten programs would receive 5 percent increases, additions that the administration said would, in part, allow more children to participate in summer programs to prepare them for kindergarten.

School districts who could demonstrate that certain state education requirements hinder their efficiency or instruction would be able to ask for exemptions.

Schools also would see new funding if Mr. Corbett's push for privatizing the sale of wine and spirits is successful.

The governor is proposing using the estimated $1 billion that would be raised from auctioning off liquor licenses to private retailers to offer grants to school districts beginning next spring.

A total of $200 million would be available for schools to use in the 2014-15 budget, for enhancing math and science classes, boosting security measures, improving kindergarten-to-third-grade curriculum, or increasing non-traditional learning programs.

One area the governor left open for debate is whether to expand Medicaid eligibility as outlined in the federal Affordable Care Act, though Mr. Corbett expressed further concerns about adding to the program's rolls.

His spending plan does not account for broadening that program, and administration staffers and the materials released state that a final decision has not been made. Mr. Corbett said the federal government "must authorize real flexibility" if the expansion is to work in Pennsylvania.

"At this time, without serious reforms, it would be financially unsustainable for the taxpayers, and I cannot recommend a dramatic Medicaid expansion," he said.

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Harrisburg bureau chief Laura Olson: or 717-787-4254. Karen Langley: or 717-787-2141. Mary Niederberger: First Published February 5, 2013 1:00 PM


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