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Sen. Scott Wagner, a prominent businessman, sits down with The York Dispatch to discuss, among other topics, the potential for conflicts of interest as he runs for governor. Wochit

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The Pennsylvania Senate on Thursday approved a plan to balance the state budget that includes heavy borrowing and some tax increases, including a severance tax on Marcellus Shale gas drilling and new or higher taxes on consumers' utility bills.

Republicans who control the chamber unveiled their plan to close a $2.2 billion hole in the $32 billion state budget late Wednesday. It includes a proposal to borrow $1.3 billion against Pennsylvania's annual share of the 1998 multistate settlement with tobacco companies.

Senators approved the bill 26-24. It now heads to the House, where it faces an uncertain future after majority Republicans last week rejected a proposal to leverage the tobacco money. House Republicans are also likely to resist calls for higher taxes to help balance the budget.

Ahead of the decisive vote, Senate Majority Leader Jake Corman, R-Centre, urged passage, saying lawmakers had held the line on new taxes as long as they could but simply needed more revenue to avoid a freeze on some government spending.

"We came here to make tough choices," he said on the Senate floor Thursday.

But state Sen. Scott Wagner, R-Spring Garden Township, who is running for the GOP nomination to challenge Democratic Gov. Tom Wolf next year, blasted the legislation's tax increases on "hardworking Pennsylvanians" and said state agencies are wasting money.

"The only winner is the beast that is state government," he said.

The bill drew Wolf's support.

Wagner was joined in his opposition to the bill by the other three senators representing parts of York County: Mike Folmer, Mike Regan and Richard Alloway.

Regan said in a tweet that he had proposed a 6.25 percent across-the-board spending reduction, though he was among 43 senators to vote in favor of the $32 billion spending bill passed on June 30.

The revenue bill includes a severance tax on natural gas drilling that Corman said would generate about $100 million per year. Gas drillers would continue to pay an existing impact fee that is split by the state government and communities in the Marcellus Shale region.

Energy companies have long objected to a severance tax, saying it would harm the state's competitiveness. Pennsylvania is the nation's No. 2 gas-producing state after Texas.

"Obviously, they're not thrilled," Corman told reporters late Wednesday. "They think they pay enough in taxes, and they probably are accurate."

But he said Senate leaders had reached an agreement with Wolf's administration on "significant permitting and regulatory reform" for gas drillers.

Consumers, meanwhile, would face $405 million in new or higher taxes from a gross receipts tax on their natural gas, electric and telecommunications bills.

The state ended the gross receipts tax on natural gas bills in 2000 as part of a broader restructuring of regulations over natural gas utilities and service. The Senate GOP plan restores the tax on natural gas bills while raising taxes on telecommunications and electricity. The tax on natural gas would be 5.7 percent. The tax on electric bills would rise by more than a half-percent to 6.5 percent, while the tax on phone bills would increase by 1 percent, to 6 percent.

GOP senators hope to raise another $43.5 million by requiring online marketplaces such as Amazon and eBay to collect sales tax from third-party sellers using their sites. The Senate plan also counts on $200 million in revenue from a massive expansion of casino-style gambling that hasn't been approved and is still the subject of a disagreement with the House.

House Republicans failed to agree on a way forward last week, rejecting a proposal that would have combined $1.5 billion in borrowing with hundreds of millions of dollars drawn from programs not included in the state budget, an approach designed to avoid higher taxes.

That left it to their counterparts in the Senate.

Rep. Seth Grove, R-Dover Township, pointed out that a majority of Senate Republicans voted against the revenue package.

"I have a problem when a majority leader puts up a vote carried by the minority," he said. "What's the point of having a majority?"

Grove said the only part of the revenue package he liked was legalizing fireworks.

"If I'm a business that's a heavy user of natural gas, I'm out of here," he said.

Grove recently told The York Dispatch that the major issue is that the entire budget process needs to be revamped. He suggested budgets get passed on a biennial basis with more oversight hearings involving state departments.

"Harrisburg's addiction to spending is insatiable," he said. "Heroin is Pennsylvania's number one addiction problem. Spending in Harrisburg is number two."

Rep. Carol Hill-Evans, D-York City, said leadership hadn't yet called House members back to session, but she was looking forward to seeing what the Senate put together.

Her preferences for a revenue package would include little-to-no borrowing and a tax on Marcellus Shale, she said.

Wolf had allowed the badly out-of-balance budget to take effect without his signature.
"Governor Wolf commends the Senate for taking a responsible step toward balancing the budget and for their willingness to include a tax on Marcellus Shale," his spokesman, J.J. Abbott, said in a statement late Wednesday.

Failing to balance the budget could result in a freeze on some government spending, potentially affecting schools and counties that administer social service programs. Additionally, nearly $600 million in state aid to Penn State, the University of Pittsburgh, Temple and Lincoln universities and the University of Pennsylvania's veterinary school remains in limbo.

— Staff reporter David Weissman contributed to this report.

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