PA Business Climate Optimism Evaporates

Wolf Budget Proposals Deeply Unpopular Among Business Owners/CEOs

After nudging into positive territory last October for the first time since 2004, the outlook of Pennsylvania business owners and Chief Executive Officers has turned sharply negative in the wake of Governor Tom Wolf’s budget proposals. Every component of the governor’s proposed budget "reforms" received a sharply negative response from the state’s job creators in the Lincoln Institute’s Spring 2015 Keystone Business Climate Survey.

Four years of business friendly policies implemented by the administration of former Governor Tom Corbett created a positive outlook from business owners and CEOs for the first time since George W. Bush was still in his first term. Albeit slight, in October 2014, 19% of the business leaders said the state’s economic conditions had improved during the preceding six months, while 18% felt they had gotten worse. Six months later, the picture has taken a dramatic turn for the worse. The Spring 2015 survey found 33% of the owners/CEOs responding that business conditions have gotten worse over the past six months, only 13% say business conditions have improved. Pessimism for the future has deepened, as 44% say they expect the state’s business climate to get worse over the coming six months while just 12% expect the Pennsylvania economy to improve.

Driving the dour mood among the people who actually run businesses – big and small – is a general disapproval of Governor Tom Wolfe’s budget proposals. A total of 78% disapprove of his proposed budget, with 60% saying they strongly disapprove. Just 17% gave the governor a thumbs-up; and only 6% strongly approve of his proposed fiscal policies. Overall, 80% say the governor’s proposed state budget will harm Pennsylvania’s business climate – 56% say it will do significant harm – while 14% think his proposals will improve the state’s business climate.

The state’s job creators are bracing themselves for higher taxes. As a side note, Pennsylvania’s high tax rates and stringent regulatory policies are viewed by the owners/CEOs as the biggest impediments to conducting business in Pennsylvania. They now fear that situation is about to get worse. Seventy-two percent say the proposed Wolf Administration changes to the state’s tax structure will result in them paying higher taxes, 36% say they expect to pay significantly higher taxes. Only 3% expect their taxes to drop if the Wolf agenda is enacted, while 13% say they expect to pay about the same amount in taxes. Another 11% don’t yet have enough information to render an opinion.

Cutting the state’s onerous Corporate Net Income Tax (CNI) and eliminating the double taxation brought on by the Capital Stock & Franchise Tax have long been goals of business advocacy groups in Pennsylvania, but the Wolf Administration plan of coupling those cuts with other tax law changes creating a net increase in business taxes has business owners/CEOs opposing the entire proposed package. Sixty-two percent disapprove of the governor’s proposed business tax plan, 25% voiced approval.

And that was the high point for the governor. Other proposed changes drew even stronger opposition from the business community. His proposal to increase the state’s sales tax from 6% to 6.6% and to apply the sales tax to a wide array of products and services not currently subject to sales tax drew opposition from three-quarters (75%) of the respondents with 61% expressing strong disapproval. Twenty-four percent agreed with the proposed sale tax hike.

Raise the personal income tax rate from 3.07% to 3.7%? Eighty-three percent of respondents to the Spring 2015 Keystone Business Climate Survey said they disapprove, 70% voiced strong disapproval. Sixteen percent approve of hiking the personal income tax (PIT) rate.

There is also deep suspicion over the governor’s plan to have the state pay a larger share of public education costs (with revenue from a higher and broader sales tax) and allow local school districts to decrease property taxes. Seventy percent say any drop in property taxes will be temporary, and then property taxes will rise again. Less than 2% say they expect a significant property tax cut as a result of that proposal while 13% say they might realize a slight reduction in property taxes. That is offset by the 14% who expect to pay higher property taxes.

Respondents to the survey also now oppose adding a tax on companies drilling in the Marcellus Shale region. In the Fall 2014 Keystone Business Climate Survey 51% approved of an extraction tax. Support for that tax dropped to 45% in the current poll, while opposition rose from 44% last Fall to 50% in the current survey.

General Trends

Overall, Governor Tom Wolf has proposed a state budget that would add $4.6 billion in increase spending to the state’s current $29.4 billion budget. By a wide margin business owners/CEOs say that is too much. Eighty-four percent say his spending increases are too high; 11% think they are about right; and just 1% thinks they are too low.

Government regulation is cited as the biggest barrier to job creation by 64% of the business owners/CEO participating in the Lincoln Institute’s survey. That factor is driving the negative mood of job creators in that two of the most aggressive regulators in recent state history now serve as Governor Tom Wolf’s chief of staff and top policy advisor. Thirty-six percent cited corporate taxation as a barrier to job creation while, 43% blame national economic factors.

Employment levels remained stable over the past six months. Eighteen percent of the owner/CEOs said they employ fewer people, while 16% said they have increased employment. Sixty-three percent reported employing the same number of individuals. Looking ahead six months, 18% say they plan to add employees, 13% expect to employ fewer people. Sales decreased at 32% of the companies participating in the survey, but increased at 28%. Looking ahead 35% forecast rising sales, 18% are projecting a drop.

Job Approval Ratings

Governor Tom Wolf received a strongly negative job approval rating in his first appearance in the Keystone Business Climate Survey. Sixty-nine percent disapprove of the job the governor is doing, while 14% approve. Only President Barack Obama fared worse among the business owners/CEOs, 87% disapprove of the Presidential job performance with 10% voicing approval.

U.S. Senator Robert P. Casey, Jr. likewise finds himself deep in negative territory as 64% disapprove of his performance in office while 14% approve. U.S. Senator Patrick J. Toomey fared better, with a 51% job approval rating against a 23% negative rating. Toomey was the only federal official in positive territory. The owners/CEO’s also disapprove of the job being done by new Federal Reserve Board Chairman Janet Yellen, 41% approve to 26% disapprove. And U.S. Treasury Secretary Jack Lew drew an eight percent approve against 44% who disapprove of the job he is doing.

The legal problems and controversies surrounding Attorney General Kathleen Kane have taken a toll on her standing among the state’s business leaders. Her negative rating jumped from 49% in the Fall 2014 survey to 62% in the current poll. Conversely, her positive rating dropped from 16% six months ago to just 7% in the current survey. Even state Auditor General Eugene Depasquale, the only statewide constitutional officer to avoid scandal, finds himself in negative territory – as 21% disapprove of his performance in office, while 13% approve. But, 65% offered no opinion.

Legislative bodies at both the state and federal levels continue to be unpopular. Just 11% approve of the job being done by the U.S. Senate, 79% disapprove. The U.S. House of Representatives earned a 20% approval rating with 71% voicing disapproval. The Pennsylvania Senate is viewed positively by 26% of respondents, and 56% disapprove. The Pennsylvania House of Representatives fared best among the legislative chambers, with a 28% approval rating against a 55% disapproval number.

Methodology

The Spring 2015 Pennsylvania Business Climate Survey was conducted electronically by the Lincoln Institute of Public Opinion Research, Inc. between April 1 and April 28, 2015. A total of 351 responses were collected. Of those, 83% were from the owner of a business, 14% from the CEO/COO/CFO. Less than 2% were from a state or local manager of a business.

Geographically, 27% of the respondents were from southeastern Pennsylvania; 18% from southwestern Pennsylvania; 19% from south central Pennsylvania; 11% from northeastern Pennsylvania; 9% from the northwestern portion of the state; 9% from north central Pennsylvania; 4% from Altoona/Johnstown and 4% from the Lehigh Valley.

Complete numeric results of the poll are available at www.lincolninstitute.org.