Pennsylvania Deficit Watch: February 2009

Updates on Pennsylvania’s Revenue Shortfall from the Commonwealth Foundation

The Pennsylvania Department of Revenue released the January revenue collections showing state General Fund revenues are $1.08 billion short for the fiscal year to date.

• In his mid-year budget briefing, Governor Rendell estimated that the fiscal year shortfall would reach $1.6 billion; he later upped this estimate to $2.3 billion.
• The January collections were $262 million below projections, more than double the $113 million shortfall the administration estimated in December.  This indicates a shortfall of $2.3 billion or more is likely.
• This shortfall exceeds the entire twelve-month shortfalls for fiscal years 1990-91 and 2002-03, respectively—budget cycles that resulted in the two largest tax increases in Pennsylvania history which in turn significantly hindered the state’s economic performance.

Governor Rendell has already announced several proposals to fill the revenue gap:

• $500 million in budgetary freezes, including $36 million from independent agencies;
• $174 million from revenue from Marcellus Shale lease payments;
• $101 million in additional lapses;
• $375 million from the “Rainy Day Fund” (half of the current account);
• $450 million from a federal bailout of the states;
• Requesting the General Assembly return the estimated $200 million in their reserve account to the Treasury;
• Potential layoffs (or not filling) up to 2,000 state positions;
• Increased taxes on cigarettes and new taxes on other tobacco products.

However, it is not a lack of revenue, but over-spending which produced the current budget deficit:

• Between fiscal years 2002-03 and 2008-09, total state spending increased 35.8 percent ($16.2 billion), well exceeding inflation (17.4%).
• In Government on a Diet: Spending Tips 2008, a report released in February, the Commonwealth Foundation identified billions in potential spending reductions in wasteful spending.
• Governor Rendell’s revised 2008-09 budget represents a 1.64% decrease from the enacted budget, but a 2.27% increase over 2007-08; it would be hard to argue we have “cut to the bone.”
• Despite making some cuts, Governor Rendell continues to ceremoniously hand out grants and created a new position for a former lawmaker in spite of the hiring freeze.

Upcoming Events

• Governor Rendell will give his budget address and unveil all his tax and spending proposals on Wednesday, February 4.
• On Wednesday, February 11, the Commonwealth Foundation will host a Policies and Principles Luncheon focusing on the state budget.
• Listen to Matt Brouillette digest the state budget crunch with a number of guests on Pittsburgh Renaissance Radio TODAY and on THE BOX this Saturday.
  

Additional Resources

The latest revised budget, with Rendell’s budget freezes (excluding those he is asking of independent agencies, including the legislature and judiciary) is now online. The Commonwealth Foundation has also prepared an Excel file of the revised budget for public discussion.
 
More Pennsylvania budget resources can be found here.

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The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.