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Key things to watch when Gov. Tom Wolf presents his 2015-16 budget to lawmakers

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HARRISBURG, Pennsylvania — On Tuesday, Gov. Tom Wolf will unveil his spending plans for the 2015-16 fiscal year that starts July 1. Wolf, a Democrat, is expected to propose perhaps the biggest shake-up in the state tax system in over 40 years, although little is known thus far about the precise details of his plans. All of it would require approval by the Republican-controlled Legislature. Here is a summary of what Wolf has revealed in the six weeks since he became governor, as well as the positions he took during his campaign.


BALANCING THE BUDGET

Wolf has a problem of more than $3 billion. The $29 billion budget that he inherited is filled with more than $2 billion in one-time stopgaps that Wolf must decide how to replace. A 2010 law will require him to put an additional $500 million or so toward public employee pensions. Combined with the rising cost of health care for the poor, debt and prisons, that adds up to more than $1 billion in new costs he'll need to address. He could get help from better-than-expected tax collections: through January, the seventh month of the fiscal year, the state had collected $15.7 billion, which was $360 million ahead of expectations. March, April and May are the state government's biggest tax-collection months and, if the positive trend continues, that number could rise.


SPENDING

Education spending is a critical area to watch. Wolf said during the campaign that he would increase spending on education by at least $1 billion. He has not revealed how much of an increase for public schools and universities he will seek in his first budget, however, or how he would distribute the money. Wolf also has not talked publicly about cutting programs.


SCHOOL FUNDING

This is expected to be a very important part of Wolf's plans. He has said he wants the state government to shoulder half the overall cost of public schools, up from the approximately one-third it pays now, in an effort to lighten the burden on property taxpayers. To do it, he has said he would start by increasing the personal income tax to provide a dollar-for-dollar reduction in school property taxes. Public schools received $26.5 billion during the 2012-13 school year, the latest data available. Just over $9 billion in revenue came from the state, local property taxes provided nearly $12 billion and the federal government, local wage taxes and other sources contributed the rest.


PERSONAL INCOME TAX

This will be the source of much debate. Wolf has not given details about what he will propose, but during the campaign, he said he wants to raise the income tax rate and shift more of the burden to higher-earners to cut property taxes. Currently, Pennsylvania has a 3.07 percent flat income tax, with some exemptions for the lowest-income households. In the last fiscal year, it brought in $11.4 billion to the treasury, making it the state government's largest single source of revenue.


CORPORATE TAXES

Wolf is proposing to cut business taxes. He said he wants to lower the corporate net income tax by half, from 9.99 percent to 4.99 percent, in three steps over the next three years. He also wants to broaden the tax to capture more income from national and multinational companies by closing the "Delaware loophole" through a change in law called combined reporting. He also said he will not change a current state law that will end the capital stock and franchise tax in 2016.


SALES TAX

There may be a surprise here. During the campaign, Wolf said he does not support an increase in sales taxes — the second-largest source of state revenue — because it would hit lower-income consumers the hardest. However, he may have to rethink that position if he wants enough money to balance the budget, increase education funding and cut corporate and school property taxes.


PENSIONS

The taxpayers' required contribution to school and state employee pensions is expected to grow by about $500 million next year. Wolf has said he will find the money to make the payments and maintain the current pension system. School districts are buckling under the rising payment schedule set by a 2010 law that cut pension benefits and put the state on a 30-year course to make up for a decade of underfunding the pension system. It is possible that Wolf will offer the school districts help in paying their pension costs.


MINIMUM WAGE

While the minimum wage law is separate from the state budget, Wolf may take time during his budget address to call for an increase. During and after his campaign, Wolf has said he supports increasing Pennsylvania's minimum wage of $7.25 an hour, set by federal law, to $10.10 over a two-year period and indexing it to inflation. The federal minimum wage has stood at $7.25 an hour since 2009.

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