It was a confident Lt. Gov. Jim Cawley in Warren County Friday, confident of the administration's course and its ability to overcome a burgeoning shortfall in state revenue while still meeting the spending proposals in Gov. Tom Corbett's budget.
With revenues already more than $700 million below estimates and likely to top out at almost $1 billion, Cawley said before looking at new taxes, something Corbett had promised to avoid when he first took office four years ago, the state should take a hard look at what it's spending.
Cawley actually blamed the shortfall on increased taxes, federal taxes.
"One of the main drivers of that deficit is higher taxes," he said. Noting that the prospect of higher federal taxes on capital gains caused a broad sell-off of certain assets by investors in 2012, hence increasing revenues for both the federal government and the state, it resulted in lower capital gains in 2013 and the first quarter of this year.
"Capital gains have fallen off," he noted.
So, how does the administration deal with the resulting deficit?
"The same we we did for the first three budgets we did," Cawley said, "through good fiscal stewardship, investment in education and investments to reduce waiting lists for individuals with disabilities."
He also pointed out that "without raising taxes one cent for individuals" the state could recoup much of the projected deficits through privatization of wine and liquor sales and pension reform, which alone is estimated to cost $610 million more next year than this year.
He said the governor has put forth a plan that would abandon the defined benefit pension plans that have been the norm for state employees and teachers and replace them with a defined contribution plan, where the state would kick in a finite sum to something like a 401k plan that is so common in the private sector. New employees would be enrolled in the new plan upon hiring. Then, the state would set a "gate" at a point in the future when current employees would be covered by the new plan. Current retirees pension payments would not be affected, he said.
When asked about how the plan would be affected by contractual obligations with the various state unions, he said existing contracts would be honored where the pension definition was spelled out in those agreements. However, the defined benefit plan would be "off the table" by law in any new negotiation.
He said the administration believes that process passes constitutional and legal tests with regard to contract negotiations.
So far, the state General Assembly has taken no action on either liquor privatization or the pension system.
Meanwhile, there appears to be increasing acceptance within the governor's own party in the legislature of some sort of extraction or severance tax on the shale gas industry, something Corbett has steadfastly refused to accept.
Would he veto a bill establishing such a tax if it reached his desk?
Cawley didn't answer directly, but pointed out the General Assembly needs to look at taxation in its entirety, rather than focusing on one specific tax on one specific industry. "We need to look at what we are spending," he said.
He pointed out that while other gas-producing states may have severance taxes on oil and gas, many of them, including Texas, do not have the list of other business taxes that are levied in Pennsylvania. Those include the corporate income tax and the capital stock and franchise tax.
He said the shale gas industry is paying those taxes now, as well as an impact fee that was enacted two years ago. Combined, he said, since 2008 when the gas boom began, deep shale gas producers have paid nearly $2.6 billion in taxes and fees in Pennsylvania.
He attributed the new expressions of support for an extraction tax on a misunderstanding of the industry and its importance to the state and the nation, maintaining that vigorous gas exploration and production is pumping billions into the state's economy, reducing national dependence on foreign energy sources and creating thousands of jobs in the state.
"We (in government) haven't told the story," he said. "The gas industry has to do a better job at telling the story" and overcoming the unfortunate images that were produced in the early days of the boom.
Cawley was traveling around Warren County on Friday, meeting with business and industry leaders as well as Republican Party faithful, speaking at the annual Republican Party Dinner Friday night. Over the weekend, he was in Forest and Venango Counties, mixing official business with campaigning.