October 31, 2014 / 11:08 AM / 5 years ago

New taxes or not, Pennsylvania's next governor faces fiscal morass

NEW YORK (Reuters) - The Democrat who could oust Pennsylvania’s Republican governor in November wants to reshape the state’s personal income tax system to make it more progressive.

Hillary Clinton waves to the crowd while being introduced by democratic challenger for Pennsylvania Governor Tom Wolf at a "Women for Wolf" grassroots rally at the National Constitution Center in Philadelphia, October 9, 2014. REUTERS/Mark Makela

But if he wins, Tom Wolf, who was Revenue Secretary under former Democratic Governor Ed Rendell, probably could not get the plan past the Republican legislature, one that did not even support most proposals from a fellow Republican, incumbent Governor Tom Corbett.

Whichever candidate prevails, he faces a fiscal mess with few easy fixes. Pennsylvania’s public pension system has a $50 billion future gap at a time when new revenue is in short supply because of the state’s sluggish economic recovery.

“It’s a budget nightmare for the next governor,” said G. Terry Madonna, public affairs professor at Pennsylvania’s Franklin & Marshall College.

Corbett proposed a pension fix early in 2013 which would have lightened the load for state and local governments but increased unfunded liabilities.

His plan flopped in the legislature, and the problem festers. The state’s pension contribution is about $4.2 billion, or 14.5 percent of the general fund budget, and growing.

Wolf has been “painfully vague” in offering his own ideas to resolve pension problems, said Christopher Borick, political science professor at Muhlenberg College in Allentown.

“It’s a tough issue politically, especially for a Democrat that draws lots of support from interests that are affected by this,” in particular the teachers’ union, Borick said.

Corbett had to close a $1.2 billion gap to balance this year’s $29 billion budget. Pennsylvania has no money in its rainy-day fund.

Though he has gained ground, Corbett remains far behind Wolf, who leads 53 - 40 percent, according to the latest Franklin & Marshall College poll.

“Corbett has had a balanced budget for four years pretty much on time, with no tax increases. It’s not doing him much good,” said Steven Geisenberger, of the Pennsylvania Institute of Certified Public Accountants’ legislative committee.

The most important issue to voters, the one that still has Corbett on the defensive, is education spending.

Critics say Corbett presided over steep cuts in basic education funding that hit poor school districts the hardest, especially Philadelphia. The city has slashed programs, teachers and staff and shuttered schools as its long-brewing financial crisis worsened.

Corbett insists that he restored big cuts made by Rendell, his Democratic predecessor, who backfilled education funding with federal stimulus money that quickly dried up.

Wolf says he wants to boost education funding, and would pay for it with a 5 percent severance tax on the state’s booming natural gas industry. He claims that could generate $1 billion in new revenue.

That tax would be more palatable to Republicans, analysts said, with some from Philadelphia’s suburbs already supportive.

Corbett previously opposed a severance tax out of concern it would threaten industry growth. While he still does not support it, he said in a National Public Radio interview in mid-October that he would consider taxing Pennsylvania gas transmission lines.

Reporting by Hilary Russ; Editing by David Gregorio

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