Taxes & Spending

Recent Issues

State Budget Solution #5: Tackle the Shadow Budget


General Fund Budget Is Just 40 Percent of State Government’s True Cost February 3, 2017, Harrisburg, Pa.—With budget season launching, most public discussion will focus on the General Fund budget, which was $31.6 billion last year. But this was just 40 percent of state government’s $78 billion cost. Hidden in the remaining 60 perce

State Budget Solution #4: Cut Corporate Welfare


Pa. Leads Nation in Wasteful Corporate Subsidies at $6 Billion Since 2007 February 1, 2017, Harrisburg, Pa.—This year state government will transfer more than $800 million from Pennsylvanians to billion-dollar corpor

State Budget Solution #1: Corrections Reform


The Commonwealth Foundation has outlined a menu of policy solutions to close the budget deficit without tax increases. Solution #1: Corrections Reform


Recent Blog Posts

Examining the Staggering Cost of Pensions

CF senior policy analyst James Paul recently spoke with WURD Radio’s Stephanie Renee on Pennsylvania’s skyrocketing pension costs—and what can be done about them. Pennsylvania’s unfunded pension liability stands at more than $60 billion dollars, two times the annual General Fund budget, and it keeps growing. In short, state government is making promises it can’t keep.

Pension costs are also eating up new education funding. State spending on education has risen every year since 2010, and this year it is at an all-time high. Yet, pensions costs are taking a bigger and bigger chunk of education funding—meaning dollars targeted to education aren’t going to the classroom.

James explains that the answer is structural reform to our pension system. Switching to a defined contribution system will allow portability and affordability, giving employees more choice and helping protect taxpayers in the long run.

Click here or listen below!

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posted by Don Lim | 00:22 PM

Five Takeaways From the Governor's Budget Proposal

This morning Governor Wolf laid out his plan for the 2017-18 state budget. Here are the five things you need to know:

1. Shift to redesigning government. This is a sharp contrast from Gov. Wolf’s first two budget addresses. His focus has shifted from massive tax and spending increases to streamlining government and making government more efficient. This is a positive development, representing the economic and political reality in Pennsylvania.

2. Good news and bad news on taxes. Gov. Wolf has dropped proposals to raise the income tax or raise the sales tax ratetwo cornerstones of his first two budget proposals. He touts this as “no broad-based taxes” in the new budget.

He does, however, propose imposing the sales tax on several businesses services that are untaxed. Absent tax reductions elsewhere, it will increase Pennsylvania’s tax burdenalready 15th highest in the country.

For the third time, Gov. Wolf proposed a natural gas severance tax. This 6.5% proposal isn’t likely to get traction in the legislature. The severance tax, which targets one group of people, ignores the 5% tax drillers already pay, plus all of the high taxes every other Pennsylvania business pays. With gas prices still depressed, this tax wouldn’t generate much revenue, and would only hinder job growth at a time the gas industry is already laying off workers.

In total, Wolf calls for $1 billion in additional taxes or $315 per family of four.

3. Serious efforts to control spending. From closure of SCI Pittsburgh to reducing corporate welfare, Governor Wolf is making a real effort to control spending.

His proposal to reduce corporate welfare tax credits by $100 million is a laudable first step towards ending the $800 million practice of handouts to corporations. Yet, at the same time, he expands certain corporate welfare programs.

In addition, his corporate welfare reduction plan treats the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC) like other tax credits, potentially cutting funding for students’ scholarships. Read more from James about why that would be a mistake, and why we should increase opportunities for educational choice.

Wolf has proposed merging four departments into the Department of Health and Human Services ($100 million savings); the Department of Correction and Probation & Parole into one agency ($10 million savings); and merging the management of the states two pension funds (SERS and PSERS). These mergers are intended to both eliminate unnecessary bureaucracy and to provide more efficient services. In principle, these recommendations are a welcome development. Commonwealth Foundation has long highlighted the need to streamline state government.

Wolf has outlined $2.1 billion in government efficiencies through these reforms—though these proposals will require more vetting and analysis to see if the administration's estimates hold true. More than $300 million of this is not savings but "revenue enhancements."

Gov. Wolf’s estimate of $95 million in new revenue from increasing the minimum wage mandate is the most dubious. Not only is he discounting the individuals who would lose their job under this mandate, but this projection acts as though a law can mandate a more robust economy. It doesn’t—minimum wage laws merely redirect money in the economy. 

Finally, the governor has proposed new sentencing reforms designed to reduce recidivism and help parolees stay in the community. These recommendations are estimated to save $108 million over five years.

4. Modest spending increase above TPA with some accounting gimmicks. Gov. Wolf proposes a General Fund budget of $32.34 billion, representing an increase of 1.8 percent. While a modest increase, certainly in comparison to prior proposals, it exceeds the index in the Taxpayer Protection Act (advanced in the Senate today). The TPA limit—the average increase in population and inflation over the past three years—was only 1.16 percent, as Pennsylvania’s population declined last year.

The baseline for this comparison also includes $234 million in “supplemental appropriations”—spending levels higher than the legislature passed last June. His proposal calls also for $300 million in borrowing to fund programs like health research grants and grants to the arts, which merely shifts spending to the future.

In total, the operating budget would reach $81 billion, or more than $25,000 per family of four ($6,300 per person).

5. Need remains for transformative structural reforms: No amount of new taxes, one-time revenue tricks or borrowing can permanently fix the commonwealth's fiscal woes. Pennsylvania is suffering from a deep-seated structural spending problem.

For starters, almost half of the Pennsylvania state operating budget (49 percent) is spent on Human Services, with the bulk of that on Medical Assistance and Long Term Living (i.e., Medicaid programs). Human Services costs are expected to increase by more than 5 percent every year, while state revenue growth is projected at around 2 percent per year. Yet Medicaid patients experience inferior care, such a long waiting times and difficulty finding a provider.

Structural reforms are essential to solving Pennsylvania's budget crisis once and for all. These structural reforms include limiting state spending to the growth of inflation and population through the Taxpayer Protection Act, fully privatizing the state liquor system, and reforming pensions to create an affordable system for taxpayers that gives workers more flexibility.

 

Governor Wolf's 2017-18 budget proposal is a welcome departure from past massive tax hike attempts. However, it doesn't do far enough to stem the rising costs of state government, which continues to burden families across the state.

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posted by Nathan Benefield | 01:25 PM

Pennsylvania Deficit Watch: February 2017

Revenue collections underperformed again in January, according to the Department of Revenue. This is the third straight month—and the sixth of the last seven—in which revenue collections fell short of official estimates.

The state collected $2.6 billion last month—$49.8 million or 1.8 percent less than anticipated. To date, revenue collections are approximately $416.8 million below estimates.

 

The $1.3 billion revenue package enacted in July has not generated enough revenue to pay for the state’s $1.6 billion spending increase. The package included $650 million in tax hikes, which not only failed to balance the state budget but also destroyed jobs throughout the commonwealth.

The latest revenue estimates from the Independent Fiscal Office (IFO) suggest the state will end the year with a deficit exceeding $700 million absent any significant policy changes or revisions to the state’s balance sheet.

The IFO warned about optimistic revenue projections back in August. At the time, the IFO identified major problems with the legislature’s assumptions and adjusted projections to account for them:

  • The legislature moved the Commonwealth Financing Authority (CFA) out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have expressed an interest in passing gambling expansion to generate $100 million to cover CFA spending, but the proposal is still in the early stages of the legislative process. The IFO deducted $95 million from sales tax revenue to pay for CFA’s expenses.
  • The legislature predicted Act 39 (wine modernization) would raise $149 million in 2016-17. The IFO projected this number would be just $73 million—a $76 million difference.
  • Official projections over-estimated tobacco tax revenue (including taxes on cigarettes, e-cigarettes, loose, and roll-your-own tobacco). The IFO's estimate was $38 million less than official projections.
  • Official estimates assumed $75 million from the Philadelphia casino. The IFO does not expect the casino will generate revenue this fiscal year.

Though some of the above projections have changed, its clear Pennsylvania's current state budget was unbalanced from the start.

Acknowledging the seriousness of the commonwealth's financial position, legislative leaders and Gov. Wolf have committed to restructuring government. To achieve this goal, policymakers have a number of options, including a host of ideas found in our policy brief, Embracing Innovation in State Government. Our recommendations include, but are not limited to, the following:

With five months left in the fiscal year, revenue collections aren’t likely to improve much, if at all. A plan to reduce spending is needed soon to ensure spending matches revenues come June. The last thing Pennsylvanians need is another tax hike.

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posted by Bob Dick | 10:44 PM