Pennsylvania 2011-2012 Budget – Did It Go Too Far? | AccountingWEB

Pennsylvania 2011-2012 Budget – Did It Go Too Far?

Last week Pennsylvania’s governor put forth his 2011-2012 budget. As most governors are doing across the country, our governor proposed some difficult spending cuts. Much has been written about his proposed plan, his lack of tax increases, and his deep educational cuts. I thought I would dig a little deeper into the plan. 

Governor Corbett is the first governor in over two decades to submit a budget that was lower than the prior year. I personally find this to be refreshing. This recession has impacted everyone from large business, small business, nonprofits…government is just now feeling the effect and the need to cut back as everyone else has.
What I particularly like about this budget are the areas that our governor selected to reduce and the tone he used when communicating this message. Unlike some other states (New Jersey and Wisconsin) and their governors, ours seemed to not be looking for a fight with unions and state employees. While he did propose eliminating 1,500 state jobs, 1,000 of them are currently vacant. He did speak about a pay freeze for state employees (and additional contributions for health insurance and retirement), but in the business and nonprofit world this has already been done.
The two key areas I think are worth discussing as they have received the most press are: the 50% cut back in funding to the state schools in the System of Higher Education (and the reduction in total spending in Basic Education Funding) and the Marcellus Shale taxation.
It is being reported over and over that he is the first governor to reduce education spending and that he is making “Draconian” cuts. Some facts about reduction in education spending: Two years ago the Federal Government passed a bill called the Stimulus Bill and flooded states with cash for two years worth of programs. Everyone knew when they took the money that it would end in a few short years. But as people often do, they came to believe this was something they were entitled too. Now that the funds are cut off to Pennsylvania, should we as taxpayers keep paying it?
This current proposed budget simply takes the educational spending back to what it was pre-stimulus spending. It is the exact amount our state spent in the 2008-2009 fiscal year. Yes, the amount the schools are receiving is less than last year, but that amount was inflated with “hot money” that they never should have expected to continue.
The other key area is that regarding the Marcellus Shale taxation. Our state has been blessed with some of the world’s largest natural gas deposits. Many people claim (and the media reports) that we are NOT taxing this rich asset. The governor pointed out in his speech that we are in fact taxing them - not just extra.
The drillers are subject to Pennsylvania’s corporate taxes as well as its sales and use taxes. Land owners are subject to the Personal Income Tax on the royalties which they receive from the drillers for use of the land. We tax them just like any other taxpayer. The governor is simply asking, why should we take them more? Because we can? We desire economic growth and want to attract new industries to our state. What message does that send to future business? Come to Pennsylvania and become successful so we can tax you even more?
I do see the other side of this argument which suggests having an extraction tax which would help in to create reserves for potential future enviromental impact to the drilling areas. I am certain this issue will be debated for many years to come.
These of course, are my opinions on this proposed budget, but I value your thoughts and input. Please let me know what you think.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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