Earlier today, Senators Camera Bartolotta and Mike Folmer and Rep. Tim Krieger announced their intentions to usher in an era of fiscal responsibility with the Taxpayer Protection Act (TPA) and Taxpayer Protection Amendment.
The TPA would limit government spending to inflation and population growth. Any revenue above this cap would be used to pay down pension liabilities, replenish the "Rainy Day Fund," and provide tax relief to working Pennsylvanians. These reforms would shield families from out-of-control spending growth that hinders job creation, promotes "brain drain," and stymies personal income growth.
Since 1970, state government spending has risen nearly $14,000 per family, leaving residents with the tenth-highest tax burden in the country to pay for it all.
This gargantuan growth in government has not stimulated Pennsylvania's economy. Pennsylvania ranks a depressing 49th in job growth, a dubious 48th in population growth, and a dismal 45th in personal income growth since 1991.
Had TPA spending controls been in effect since 2003, taxpayers would have saved $28.7 billion over the past decade—or nearly $9,200 per family of four. The TPA is just one of many crucial steps that would move us toward a balanced budget and put Pennsylvania back on the road to prosperity.
CF's Nate Benefield commented:
It's time to protect Pennsylvanians' ability to live, work, and prosper within the commonwealth with the Taxpayer Protection Act
This year, Pennsylvania lawmakers have the formidable task of eliminating a projected $1.7 billion budget deficit. Bob Dick, a CF policy analyst, spoke with Gary Sutton about what can be done to step towards a balanced budget.
A crucial first step is protecting families and business from unfair tax increases. As Bob points out, the “tax burden on Pennsylvanians in general is the tenth highest in the country—adding more to that burden is just not fair, and it makes it harder for working families to make ends meet.”
Avoiding overspending—by cutting unnecessary burdens like corporate welfare—is another vital step in balancing the budget. Though it has proven to be an ineffective means to stimulate job growth, Pennsylvania tops the charts in corporate welfare.
Bob describes how eliminating this wasteful spending would save taxpayers around $675 million.
Listen to some of Bob’s interview with Gary Sutton on WSBA 910 AM as he describes balancing the budget in more detail:
The Gary Sutton Show airs daily on WSBA 910AM in the York area.
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Every man, woman and child in Pennsylvania owes just over $10,000 in state and local debt. Today, the state House made another positive step towards reducing that debt burden. HB 2420 passed the chamber on a 114-82 vote. A related bill, HB 2419 has advanced from committee and awaits a floor vote when the legislature is next in on October 6.
HB 2420, sponsored by Rep. Kerry Benninghoff, would reduce the state's borrowing for the RACP programs by $50 million each year beginning in 2018-19 until it reaches $2.95 billion. Last year, RACP's debt limit was reduced from $4.05 billion to $3.45 billion.
RACP allows taxpayer-backed borrowing for private projects, like sports stadiums and corporate headquarters. RACP has a long history of funding questionable projects such as the Arlen Specter Library, the bankrupt August Wilson Center in Pittsburgh and a $3 million grant to the Second Mile, the charity founded by convicted child molester Jerry Sandusky.
HB 2419 sponsored by Rep. Mike Turzai would cap the annual borrowing for new projects beginning in 2015-16. Specifically, the bill would cap:
- Redevelopment Assistance Capital Projects, known as RACP, at $125 million
- Flood Control Projects at $25 million
- Highway Projects at $25 million
- Public Improvement Projects at $350 million
- Transportation Assistance Projects at $175 million
House lawmakers should be commended for tackling Pennsylvania’s borrowing problem, and recognizing that RACP subsidies crowd out private investment and prevent broad-based tax reduction to stimulate job growth for all.
On the heels of Pennsylvania’s bond rating downgrade, House Majority Leader Mike Turzai has declared his intention to ease Pennsylvanians’ debt burden. This represents a necessary step towards restoring Pennsylvania’s fiscal health and credit rating.
According to the Standard Speaker, Rep. Turzai proposes capping annual spending on public improvement and flood control projects with the goal of reducing annual interest payments made on the state's debt obligations. This proposal should be applauded, as the state and local debt burden exceeds $10,000 per resident and debt payments have been one of the fast growing areas of state spending. Debt payments from the General Fund Budget exceed $1 billion per year, nearly triple what it was 12 years ago.
The move is both pro-taxpayer and pro-economic growth. By easing the debt burden, lawmakers can avoid increasing taxes to pay for mounting debt obligations. Equally important, investors and businesses will be more willing to invest and grow in the state, leading to more jobs.
Last October, the General Assembly lowered the state’s debt ceiling for the RACP program by $600 million during a time when politicians in Washington were voting to raise the national debt ceiling. At that time, we noted how refreshing it was to see lawmakers move to protect taxpayers; the same can be said again with Rep. Turzai’s current proposal.
For the third time in two years, a major bond rating agency gave Pennsylvania a downgrade.
The most recent downgrade, courtesy of Moody’s, has real implications for taxpayers. Moody's points to "one-time measures", a "structural impalance," and "large and growing pension liabilities" as reasons for their downgrade.
This has been a long time coming. For seven straight years—dating back to the Rendell administration and reliance on temporary stimulus funds—Pennsylvania has spent more than revenue. The most recent state budget, while avoiding raising taxes and doing well to keep spending under the rate of inflation and population growth, did not fully fix this structural deficit.
In addition, past decision combined with poor investment performance have resulted in a massive, and still growing, unfunded pension liability. This pension liability and lack of meaningful reform was the primary impetus for Moody’s downgrade.
Due to the downgrade, creditors may require higher interest rates for state and local debt, leaving you to pick up the tab. This threatens taxpayers with future tax increases, and makes Pennsylvania a less attractive state for investment or new businesses.
Moreover, neglecting pension reform could result in the commonwealth, not to mention cities that have their own pension problems, facing Detroit-like insolvency. This month, Detroit workers and retirees voted to accept a 4.5 percent cut in their pension benefits. Such a cut—particularly for retirees—used to be unthinkable in the public sector. But today's pension crisis represents a triple threat to state and local governments, taxpayers, and employees.
But Detroit's fate need not be our destiny. By continuing to practice fiscal restraint and addressing long-term cost-drivers via meaningful reform, we can build a Prosperous Pennsylvania.
Pennsylvanians are losing economic freedom according to the Fraser Institute’s annual report, Economic Freedom of North America 2013. The commonwealth is slowly losing ground ranking 33rd in 2009 and dropping to 40th in the latest study.
The index measures the limitations on economic freedom imposed by all levels of government in the 50 U.S. states and 10 Canadian provinces under three broad categories. Pennsylvania performs poorly in each category:
- Size of government: 48th
- Takings and discriminatory wealth redistribution: 34th
- Labor market freedom: 24th
There are several reasons for Pennsylvania’s abysmal performance. Chief among them is Pennsylvania's growing debt and spending, which has created $47 billion in unfunded pension debt and an estimated $1.2 to $1.4 billion budget deficit.
If policymakers want to improve the lives of Pennsylvanians, focus should be on increasing economic freedom and opportunity by enacting pension reform, slowing the growth of overall spending and reducing the size of government.
For more on how to accomplish these goals, check out our newest report: Blueprint for a Prosperous Pennsylvania.
Pennsylvania ranks 42nd in overall fiscal condition, according to a report by Sarah Arnett of the Mercatus Center. The report, State Fiscal Condition: Ranking the 50 States, analyzes states' abilities to meet their financial obligations.
Dr. Arnett uses four indices to determine state rankings: cash solvency, budget solvency to cover near-term bills, long-term solvency, and service-level solvency to provide residents with an adequate level of services. Due to low rankings in all four categories, Pennsylvania comes among the bottom 10 states in the overall fiscal condition.
Top performing states matched revenues and expenses, allowing them to pay short term bills and construct strategies for managing long-term liabilities. In contrast, bottom performing states have mismanaged at least one fiscal condition. More specifically, decades of irresponsible bond issuance, underfunded pension systems, rising health-care costs, and the appearance of balanced budgets—in short, poor financial management decisions on top of bad economic conditions—have harmed these states fiscal conditions.
Pennsylvania is guilty on each of these counts.
- The Independent Fiscal Office warns that federal stimulus dollars and reserves are running dry, yet state spending has reached an all-time high, surpassing $66 billion, an inflation-adjusted increase of $12,655 per family of four (or $3,163 more per resident).
- Combined state and local debt has reached $125 billion.
- Unfunded pension liabilities between the state’s two public pension systems total $47 billion.
- Both Fitch Ratings and Moody's have downgraded Pennsylvania’s bond ratings, citing pension liabilities and limited reserves.
Already ranking 10th highest in the nation in state and local tax burdens, Pennsylvania's bills are coming due, and absent reform, the burden on taxpayers will only get heavier.
The time has come to heed these warnings as our state leans further and further off the fiscal precipice.
Pennsylvania's fiscal outlook looks bleak according to a detailed report examining state revenue and spending released by the Independent Fiscal Office (IFO) last week.
The agency projects a general fund budget deficit every year for the next five years. In 2018-19, the IFO projects a budget deficit of almost $2.1 billion. To make matters worse, these projections assume an improvement in economic conditions, which would mean more tax revenue to help pay for state government’s ever-growing expenditures. But such an improvement is far from certain.
This budget shortfall is not a new problem, but one caused by years of overspending. State general fund spending has exceeded state revenue for six consecutive years. This overspending was made possible through federal stimulus funds, along with using the "Rainy Day Fund," and transferring more than $3 billion from other funds for one-time revenue.
The report hits on the two main causes of Pennsylvania’s structural fiscal problems: welfare spending and employee compensation. Recent news reports have brought renewed attention to the rampant waste and fraud in welfare spending. Lawmakers cannot begin addressing our fiscal cliff without taking steps to address abuses and enacting reforms to mend our safety net.
Further, increases in most areas of the state budget will be dwarfed by massive increases in state pension contributions. The report projects state pension contributions will increase from $1.4 billion to almost $3.4 billion, an increase of nearly 143%. This is why pension reform is critical.
Lawmakers must begin to rein in this out-of-control-spending, as these spending trends are unsustainable, and taxpayers—already burdened with the 10th highest state taxes—cannot be asked to simply pay more.
Yesterday, House and Senate leaders came together to negotiate a deal—that passed with bipartisan support in both chambers—to reduce our debt ceiling.
If that sounds unbelievable, I should mention those were state legislative leaders in Harrisburg, not those in Washington, and the unanimous vote was to reduce borrowing under the Redevelopment Assistance Capital Program (RACP, or R-Cap).
The legislation (HB 493, sponsored by Rep. Matt Gabler) reduces the total amount of debt that can be owed under RACP by $600 million. The bill also provides greater accountability, oversight and transparency regarding how RACP grants are awarded. HB 493 goes to Gov. Corbett for his signature.
As a refresher, RACP effectively uses borrowed money—paid back with interest by taxpayers—for local "economic development" projects or corporate welfare projects. Some of the more controversial projects include the Arlen Specter Library, the corporate headquarters Tastykake, numerous sports stadiums, and a $3 million grant to the Second Mile, the charity founded by convicted child molester Jerry Sandusky.
While politicians in our nation's capital are once again expanding the federal debt limit on the backs of our children after weeks of partisan rancor, it is refreshing to see lawmakers here in the commonwealth come together and actually reduce the debt burden for current and future generations of taxpayers.
Can Americans afford slower economic growth and a lower standard of living in the future? That will be the impact of growing government debt on the economy, according to a a policy brief released by the Stanford Institute for Economic Policy Research.
Michael J. Boskin explains:
How does a high debt-GDP ratio slow growth? Higher debt ratios eventually crowd out investment, as holdings of government debt replace capital in private portfolios. The lower tangible capital formation reduces future income. To the extent the reduced capital formation slows the development and dissemination of new technology, this effect will be amplified. Every dollar borrowed requires future interest be paid, whose present discounted value equals the debt. So future taxes must go up to cover the interest unless future spending is cut. The prospect and then reality of higher tax rates, plus increased uncertainty about future fiscal policy, slows growth and also raises the specter of higher inflation eroding the value of the government debt and/or a financial crisis, which might sharply raise interest rates.
So despite what some politicians claim, more government deficit spending and debt actually hurts the economy. What's needed for economic growth is private investment, not government investment.
What does lower economic growth mean? If the U.S. government continues to recklessly run up the debt, projections have the average family losing as much as 30 percent of their potential income by 2050. That is, families would be one-third poorer because of the burden of government debt.
Politicians like to set up a false choice between fiscal austerity and stimulating the economy, when in reality, the two aren't mutually exclusive. Debt or prosperity? It's our choice.
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