Three of Four Alarms Still Ringing

DECEMBER 3, 2012 | by NATHAN BENEFIELD

Late last month, the Independent Fiscal Office released its annual report looking at Pennsylvania's economy and forecasting state budget expenditures and revenues. The trends remain alarming.

Most notably, state government is spending more than it is collecting in revenue this year (using remaining surpluses to fill in the gap), and that shortfall is set to widen in future years. The general fund gap will reach $2.2 billion by 2017-18.

This shortfall will be driven by dramatic increases in pension contributions (which will also affect school districts and local governments), Medicaid costs, and debt payments.

As intimidating as that seems, the IFO forecasts assume "current policy"—things will likely get worse. For starters, the IFO assumes spending in discretionary areas like education and transportation will only change with population and inflation; any additional spending lawmakers want will add to those deficits. And the IFO does not include the Medicaid expansion under the Affordable Care Act, which could cost the commonwealth upwards of another $5 billion over the next few years.

On the bright side, the IFO forecasts corrections spending—one of the "four alarms" we've been highlighting—will slow and shrink as a share of the budget over the next five years thanks to landmark corrections reform enacted this year.

Lawmakers must tackle unsustainable pension and welfare spending with the same sort of bipartisan solutions before Pennsylvania's budgetary fire becomes an inferno, and families and business are burned with massive tax hikes.



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