State Budget Must Address Economic Competitiveness

Member Group : PA Chamber of Business and Industry

Wednesday, Feb. 4, 2008

State budget must address Pa.’s economic competitiveness

HARRISBURG, PA – The Pennsylvania Chamber of Business and Industry today urged the Rendell administration and state lawmakers to control spending in the 2009-10 budget and find ways to boost job and economic growth in order to help Pennsylvania weather the economic downturn and be better positioned during eventual recovery.

"While we recognize that some steps have been taken by the administration to address the sizeable budget deficit facing the Commonwealth, spending is up in the governor’s proposed budget," said Gene Barr, PA Chamber vice president of government and public affairs, who noted that the budget increases General Fund expenditures by 4.6 percent over the current fiscal year.

Barr also expressed concern that the governor’s budget relies too heavily on a federal stimulus plan that may not materialize.

"Business acknowledges the difficult choices that lawmakers will still be forced to make in crafting a spending plan for the state during this challenging economy and that there will be pain," he added. "But with seemingly each day bringing more bad news to Pennsylvania’s working men and women, elected officials must make it a priority to foster job creation and improve the state’s lackluster economic standing," he stressed.

Barr said business welcomes the fact that no changes are proposed to the continued phase-out of the Capital Stock and Franchise tax, which was implemented by the Ridge administration. However, he pointed out that other states such as Minnesota and New Jersey to name a few, have recently taken bold steps to spur economic growth during this economy by making important changes to their business tax structures.

"Pennsylvania needs to take this same approach. Rather than looking to create new taxes and increase spending in some areas, there are many fundamental changes that can be made to our business climate to encourage business growth and job creation and save taxpayer dollars, including legal reform and reducing the cost of health care," Barr said.

The PA Chamber and others in the unified business community believe that eliminating the cap on Net Operating Losses and adopting a Single Sales Factor apportionment formula for the Corporate Net Income tax will go a long toward helping Pennsylvania companies now and for the long-term.

"Cyclical businesses and start-up companies, for example, are particularly vulnerable in a volatile economy, Barr noted. "A change in NOL policy would enable more job creators to ride out the current economic downturn rather than close their doors. This should be priority No. 1 during upcoming budget deliberations."

With regard to other aspects of the governor’s budget proposal, the PA Chamber is concerned about the proposed increased spending in public education absent significant structural reforms. Pennsylvania recently received an "F" for its return on investment in education, according to a study by the U.S. Chamber of Commerce. Although the governor has called for greater accountability among principals and superintendents, Barr said these officials need greater flexibility in directing their workforce.

Another of the governor’s proposals would use state tax dollars to offset higher local property taxes. Barr said if the administration really wants to help ease taxpayers’ local school district property tax burden, it can eliminate prevailing wage requirements – which can increase costs by up to 30 percent – for school construction projects.

Additionally, the Chamber expressed initial concern about the administration’s proposed severance tax on natural gas from the Marcellus Shale, and urged the state officials to proceed with caution down this path in order to not destroy a burgeoning industry that holds great promise for the Commonwealth before it even gets off the ground; and again questioned the rationale for using a declining funding source to expand a government program. A new tax on cigars and smokeless tobacco would pay for the expansion of state’s AdultBasic health-care program at the same time the state is spending money on smoking cessation programs.

"We’ll continue to look at all aspects of what the governor proposed today, including what we believe are direct and indirect levies on business," Barr said. "The challenge for all parties involved in this year’s debate is two-fold: craft a responsible state budget that will result in the least harm for Pennsylvania residents and business, while at the same time taking steps to bolster jobs and economic growth at a time when it is most needed."


The Pennsylvania Chamber of Business and Industry is the state’s largest broad-based business association, with its membership comprising nearly 50 percent of the private workforce and crossing all industry sectors.