$1.3B Pennsylvania Budget Taxes Cigarettes, Digital Downloads

Lawmakers on Wednesday approved a $1.3 billion election year revenue package that hinges on a $1-per-pack cigarette tax increase to balance the state's deficit-riddled budget and avert a lawsuit and a bond downgrade.

The hard-fought revenue package was split between tax increases and one-time infusions of cash, including a $200 million loan from a state medical malpractice insurance fund. A new sales tax on internet downloads will contribute money, as could an expansion of casino gambling.

It is perhaps the most significant election year tax increase in decades in Pennsylvania.

However, it is dramatically smaller than the $2.7 billion tax package that Democratic Gov. Tom Wolf had sought from the Republican-controlled Legislature in an effort to wipe out a long-term deficit and close huge disparities between poor and wealthy school districts.

And while it does not put to bed the state government's long-term deficit or do much to narrow school disparities, Wolf's numerous concessions helped avert a second straight prolonged and damaging partisan stalemate.

On Wednesday evening, Wolf signed the package, hammered out during weeks of negotiations, to wrap up his second budget since he became governor in 2015.

"This package is an important step forward and includes sustainable, recurring revenue that makes significant progress toward reducing our structural deficit," Wolf said in a statement.

The tax bill passed the House, 116-75, and the Senate, 28-22, in bipartisan votes amid protests by conservative lawmakers. It passed within a few hours of the final provisions becoming public.

Some Democrats were unenthusiastic about a package that leaves the state facing another big deficit next year and puts the Wolf administration under the gun to pinch pennies from prisons and Medicaid programs.

"It's become very clear to me that while this revenue package is not the best, it is the best Harrisburg can do, at least today," said Rep. Madeleine Dean, D-Montgomery. "And the alternative, not to do our job, is unacceptable to me."

The House also made the final votes to direct nearly $600 million to Pitt, Penn State, Temple, Lincoln and the University of Pennsylvania's veterinary school.

The midsummer scramble came after Wolf allowed a $31 billion spending bill to become law at midnight on Monday for the 2016-17 fiscal year, which started July 1.

He did so despite closed-door tax negotiations that had yet to bear fruit and lackluster tax collections that were projected to leave the budget bill out of balance by hundreds of millions of dollars. That raised questions about its legality and drew a swift warning by credit ratings agency Standard & Poor's that Pennsylvania's already battered bond rating could suffer.

The tax vote came after a fight over Wolf's first budget resulted in a record-long stalemate that left schools and social services agencies struggling to stay open. Wolf bowed to a Republican-penned budget that rejected every cent of a $4.5 billion tax increase that Wolf had sought, including a tax on Marcellus Shale natural gas production.

Rep. Daryl Metcalfe, R-Butler, a leader among House conservatives, said Republicans had had Wolf "in the corner."

"The leadership in the Senate and the House let Wolf out of the corner," Metcalfe said. "Wolf boxed them in, put them against the ropes."

The tax package revolves around a $1-per-pack tax increase on cigarettes, to $2.60 per pack. It would extend the state's 6 percent sales tax to digital downloads of music, videos, games, books and apps and make Pennsylvania the last state to impose a tax on smokeless tobacco.

Gambling plays a big role in the package, including $100 million from pending legislation that would make Pennsylvania the fourth state to legalize casino-style gambling on the internet, most of the money coming from lucrative one-time license fees. That bill has stalled amid disagreements between the House and Senate but is expected to come up again in the fall.

The grab bag of tax legislation would also include higher taxes on banks and an extension of wholesale taxes to roll-your-own tobacco and electronic cigarettes, including vapor devices and liquid cartridges.

Copyright AP - Associated Press
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