Pennsylvania State Budget




What Pennsylvania's Budget Trends Mean for You

DECEMBER 8, 2016

State government is growing at a startling rate. Since 1970, spending has risen by $4,010 per person—an inflation-adjusted increase of 189 percent. This is one of many findings in our latest publication, Tracking State Budget Trends.

The explosion in spending may come as a surprise to some, given the repeated claims about austerity in government—particularly in education, where cuts to programs are purportedly the norm. The facts reveal just the opposite. Education spending is at its highest level ever. What have Pennsylvanians received in return? No noticeable improvement in academic achievement and higher property taxes.

Education is one of the four major spending categories making it increasingly difficult for the legislature to enact sound budgets. The other three—corrections, debt service, and human services—have all grown tremendously over the last decade. Spending in all four categories increased by $11.8 billion, while spending in the remaining categories declined by $512 million.

That’s not to say spending outside the “Big Four” should be ignored. On the contrary, Pennsylvania’s corporate welfare programs need to be done away with to create a fair economic playing field where hard work and entrepreneurship—not political savvy—determine the makeup of the marketplace.

Still, eliminating corporate welfare is not enough to fix what ails Pennsylvania’s fiscal health. Significant reforms to the Big Four are a financial and moral imperative. Left unchecked, these categories will not only drive up spending but will trap more Pennsylvanians in our broken education, corrections, and welfare systems.

Even the people living outside these systems have a stake in their improvement. Their costs have contributed to the state’s high tax burden, which reduces the take home pay of working people and diminishes their prospects for better economic opportunities. In 1991, Pennsylvania’s tax burden was the 24th highest in the country. Since then, the burden has risen to 15th highest—a direct result of spending left on autopilot.

Pennsylvania’s trends—whether they be economic or fiscal—are worrisome. But they are reversible. If policymakers adopt innovative approaches to complex policy problems, they can clear the way for people to achieve their potential, which is the key to unleashing prosperity in Pennsylvania.

In the coming weeks, we’ll be releasing a new report to unlock this potential and help put Pennsylvania back on solid fiscal ground. Stay tuned.

posted by BOB DICK | 11:07 AM | Comments

Hits and Misses from the 2015-16 Legislative Session

DECEMBER 5, 2016

That's a wrap.

The 2015-16 legislative session is officially in the history books. Despite a $650 million tax hike, Pennsylvanians have a lot to celebrate from the past two years. From elimination of the Capital Stock and Franchise Tax to wine modernization, recent events signal Pennsylvania’s political leaders may be ready to start tackling the broken systems that are driving state spending far faster than Pennsylvania’s economy.

Here are the top seven taxpayer victories from the 2015-16 legislative session:

  1. Five tax hike proposals defeated in 2015. During his first year in office, Gov. Wolf proposed five different broad-based tax hike plans, including higher personal income, sales, and tobacco taxes; a natural gas severance tax; and more. The first proposal would have increased a family of four's tax burden by $1,450. Ultimately, the governor allowed a no-tax-hike 2015-16 budget to become law.
  2. Capital Stock and Franchise Tax elimination. Originally set to expire in 2011, this business tax, combined with the 2nd-highest corporate net income tax rate in the nation, discouraged job creation and contributed to PA’s poorly ranked business climate.
  3. No broad based tax hikes in 2016. The legislature refused to entertain sales or income tax increases. Unfortunately, lawmakers implemented $650 million in narrow-based tax hikes.
  4. Increased labor union accountability. Until last year, union leaders and members could legally stalk, harass, and threaten to use weapons of mass destruction when involved in a “labor dispute.” Act 59 of 2015 closed this loophole. In early 2016, Act 15 of 2016 gave taxpayers the ability to see the costs of government union contracts before they go into effect.
  5. Funding students, not systems. The 2016-17 budget increased the Educational Improvement Tax Credit by $25 million, giving more students the opportunity to escape violent and failing schools. The budget also includes a student-based funding formula, directing any funds above 2014-15 levels to schools based on current enrollment.
  6. Liquor modernization. In a small step forward, restaurants and grocery stores can now sell wine, and beer distributors gained additional freedoms, like the ability to sell six-packs.
  7. Honorary mention: Uber and Lyft legalization. Despite a contentious relationship with the Public Utility Commission, lawmakers finally made the ridesharing services Uber and Lyft permanently legal in Philadelphia and across the commonwealth.

The last two years also saw some missed opportunities:

  1. An unbalanced 2016-17 budget. Lawmakers passed—and Gov. Wolf let become law—a spending bill without revenue to pay for it. Despite $650 million in tax hikes, spending will still exceed revenue projections, according to the Independent Fiscal Office.
  2. Pension reform. In June 2015, lawmakers passed landmark legislation to place new state employees and public schoolteachers in a defined-contribution retirement plan, similar to a 401(k). Gov. Wolf vetoed the legislation.
  3. Liquor privatization. Both chambers passed complete liquor privatization, which Gov. Wolf promptly vetoed.  
  4. Paycheck protection. In October of 2015, the state Senate passed SB 501 to ban the use of public resources to collect political union dues and campaign contributions. The legislation stalled in the House.
  5. Medicaid expansion. Despite opposition from the legislature in 2014, Gov. Wolf rewrote a federal waiver to expand Medicaid under the Affordable Care Act with little opposition in 2015. At the time, officials predicted about 500,000 new enrollees and an infusion of federal cash that would stimulate the economy. To date, rolls have grown by more than 670,000, while the commonwealth spent $500 million last year and $240 million this fiscal year.
  6. Seniority reform. Gov. Wolf vetoed legislation to protect great teachers by ensuring that during furloughs, teachers are retained based on effectiveness, not simply seniority.
  7. Corporate welfare reductions. Pennsylvania spends more than $800 million per year on myriad tax credits, grants, and special loans to private corporations. Yet, we continually rank near the bottom in economic growth. While a few bills to reduce these loans made progress, the legislature has, by and large, failed to recognize these programs don't work.

The commonwealth's financial troubles are serious and systematic. In the new year, lawmakers will have another chance to tackle the broken systems that harm Pennsylvanians by pursuing true pension reform, welfare reform and expanded educational choice for families.

posted by ELIZABETH STELLE | 09:47 AM | Comments

Pennsylvania Deficit Watch: December 2016

DECEMBER 2, 2016

State revenue collections came in at $79.5 million below the official estimate for November, according to the Pennsylvania Deparment of Revenue. Lackluster collections wiped away the little progress made during October when revenue collections slightly exceeded expectations.

Overall, Pennsylvania collected approximately $2 billion last month, which was 3.8 percent less than anticipated. To date, revenue collections are $261.8 million below estimate.

In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending. The revenue assumptions built into the billion dollar package are proving unrealistic.

The chart below shows revenue collections lagging official estimates in the first five months of the fiscal year.

Back in August, the Independent Fiscal Office (IFO) released a report identifying major problems with the revenue projections lawmakers used to create the appearance of a balanced budget. To present a more accurate picture of Pennsylvania's finances, the IFO made the following adjustments:

  • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item 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 no enabling legislation exists.
  • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.

In reality, the budget was unbalanced from the start, counting on $260 million in one-time revenue and transfers from other funds. It also includes a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Ideas to consider include,

With seven months left in the fiscal year, revenue collections can improve. But lawmakers should start putting together a plan to balance the budget now in case revenues don't match expenditures come June. The last thing taxpayers need is another tax hike to cover last year's bills.

posted by BOB DICK | 08:07 AM | Comments

Pennsylvania Deficit Watch: November 2016

NOVEMBER 10, 2016

Pennsylvania Deficit Watch

Last month we raised concerns about Pennsylvania's fiscal trajectory. At the time, state revenue collections were more than $218 million below the official estimate. The current revenue picture is slightly better.

Pennsylvania collected approximately $2.2 billion last month, which was $36.1 million more than anticipated. Still, to date, revenue collections are $182.4 million below estimate.

In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending. The revenue assumptions built into the billion dollar package are now proving unrealistic.

The chart below shows revenue collections lagging official estimates in the first third of the fiscal year.

Back in August, the Independent Fiscal Office (IFO) released a report identifying major problems with the revenue projections lawmakers used to create the appearance of a balanced budget. To present a more accurate picture of Pennsylvania's finances, the IFO made the following adjustments:

  • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item 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 no enabling legislation exists.
  • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.

In reality, the budget was unbalanced from the start, counting on $260 million in one-time revenue and transfers from other funds. It also includes a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Ideas to consider include,

With two-thirds of the fiscal year remaining, revenue collections can improve. But lawmakers should start putting together a plan to balance the budget now in case there isn’t enough revenue to cover expenses come June. The last thing taxpayers need is another tax hike to cover last year's bills.

posted by BOB DICK | 11:12 AM | Comments

A Dramatic Shift in Pennsylvania

NOVEMBER 9, 2016

From celebration to soul-searching, post-election analysis is everywhere.

While top-of-the-ballot results dominate headlines and your news feed, don’t miss the dramatic shift that occurred last night in Pennsylvania.

Republicans achieved historic majorities in both chambers. In the state House, Republicans will control 60 percent of the seats for the first time in 70 years. In the Senate, Republicans will field the largest majority of any party in 68 years. But that's only part of story.

For years, we’ve talked about the Taxpayer Party vs. the Big Government Party in Harrisburg. Partisan labels aside, the real question is whether a lawmaker represents taxpayers’ interests or toes the government union leaders’ line.

While the Taxpayer Party has grown over the years, it couldn’t always overcome the strength of the Big Government Party. We saw this last month. Pension reform legislation fell three votes short in the House.

Last night in Pennsylvania and around the nation, the Taxpayer Party saw significant gains in state legislatures. Election results in states like Wisconsin, Pennsylvania, and Michigan showed the political benefit of taking on powerful government union interests to protect taxpayers from tax hikes and special political privileges.

It is no coincidence that over the past five years, Wisconsin and Michigan took bold steps to strengthen the Taxpayer Party, including limiting collective bargaining and passing right-to-reelect and right-to-work legislation.

Similarly, as the Taxpayer Party has grown in Pennsylvania, we’ve begun to see results. For example, Governor Wolf signed contract transparency legislation, and paycheck protection cleared the state Senate. These steps are critical to address rising government spending that's consistently driven by the Big Government party.

Yet, despite the gains of the Taxpayer Party in the General Assembly, divided government will continue in Harrisburg. That's an opportunity.

With an extremely tough budget on the horizon in 2017, the newly minted Legislature must work quickly to address the underlying problems that drive budget debates: surging pensions costs and a broken and expensive welfare system.

What’s more, the strengthened Taxpayer Party has an unprecedented chance to seize opportunities like expanding access to quality education choices and finally removing the state from the booze business.

This will require immense effort and continued vigilance. We’re excited to work towards implementing these ideas to build a stronger, more prosperous Pennsylvania

posted by ELIZABETH STELLE, DAWN TOGUCHI | 02:16 PM | Comments

Abysmal Investment Returns for Pension Fund, Taxpayers on the Hook

OCTOBER 13, 2016

In the past six years, Pennsylvania taxpayers’ unfunded pension liability has more than doubled from less than $30 billion to $63 billion.

While the legislative debate over reform continues, Pennsylvania taxpayers and state workers are sinking deeper into the pension crisis. A recent Moody’s report on state pension liabilities concludes states with large gaps, like Pennsylvania, will be forced to direct more money toward their pension systems just to keep unfunded liabilities from growing. That means fewer dollars for schools, roads, and other basic services.

A big reason for the growing funding gap is lower than expected investment returns.

The State Employee Retirement System (SERS) assumes a 7.5 percent rate of return for investments, but the actual rate of return was only 0.4 percent in 2015. In the first half of 2016, SERS reported a 2 percent investment return.

The much larger Pennsylvania State Education Retirement System (PSERS) isn’t fairing much better. The fund earned just 1.29 percent for the fiscal year, ending June 30th. Recognizing the reality of today’s economy, the system reduced their assumed rate of return from 7.5 percent to 7.25 percent starting July 2016.

Unfortunately, Governor Wolf vetoed reform back in June 2015 which included a defined contribution, alongside a “cash-balance plan”, for new employees only. This legislation was itself a compromise from a straight 401k-style plan that would provide adequate retirement benefits while being, by definition, fully funded.

By December, the Senate crafted a side-by-side hybrid pension model. The hybrid model allowed new employees have both a (smaller) defined benefit pension and a defined contribution plan from dollar one. While less than ideal, the plan would significantly reduce taxpayer risk, a step in the right direction.

In June, a different reform proposal passed the state house. This stacked-hybrid plan includes a defined benefit plan for workers until they reach $50,000 in salary (or 25 years of service), followed by a defined contribution plan. However, the $50,000 threshold would increase by 3 percent annually--greatly limits the number and extent of employees participating in the defined contribution plan. 

There’s no question pension reform is urgent. Lawmakers must prioritize proposals with a stronger defined contribution component while preventing political manipulation of pension payments. Anything less will keep government budgets squeezed and taxpayers exposed to tremendous risk.

posted by ELIZABETH STELLE | 03:54 PM | Comments

Pennsylvania Deficit Watch: October 2016

OCTOBER 7, 2016

Pennsylvania Deficit Watch

Pennsylvania’s state budget is three months old and showing signs of a major budget deficit.

Actual revenue collections are already behind $218.5 million through the first quarter, according to the Pennsylvania Department of Revenue. In July, the legislature passed and Gov. Wolf signed a $1.3 billion revenue package, which includes $650 million in higher taxes, to help pay for a $1.6 billion increase in government spending.

The revenue assumptions built into the billion dollar package are now proving optimistic. The chart below shows revenue collections lagging official estimates in each of the first three months.

 

In August, the Independent Fiscal Office identified problems with certain revenue projections used to balance the budget—at least on paper. Here are their major assumptions:

  • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item 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 no enabling legislation exists. 
  • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year. 

Moreover, the budget was unbalanced from the start. The budget counts on $260 million in one-time revenue and transfers from other funds, and a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

If current revenue trends continue, lawmakers and the governor will need to focus on reducing government spending to balance the budget. Such as,

As the fiscal year progresses, and more revenue collections are announced, we will continue to update our Deficit Watch.

posted by BOB DICK | 04:39 PM | Comments

Gov. Wolf Is Exacerbating Inequality

SEPTEMBER 13, 2016

Gov. Wolf is embracing a government that works for the wealthy and well-connected. Yesterday, his administration announced its intention to commit more than $20.5 million to Aramark just to keep the corporation located in Philadelphia.

The governor’s preferential treatment of Aramark stands in stark contrast to his treatment of the state’s 300 vape shops. In short, he's putting shop owners out of business for $13 million in revenue, while handing over $20 million to a multi-billion-dollar corporation. 

In each of Wolf's first two years in office, his budget included a 40 percent excise tax on the vaping industry. It failed the first year. Unfortunately, lawmakers relented and passed the tax in July as part of a larger $650 million tax increase.

The results have been disastrous. Dozens of shops—like Scottie Freeman’s— have closed their doors and many more are on the verge of closing if the tax is not repealed. Despite the devastation sweeping through the industry, Gov. Wolf hasn’t demonstrated any urgency to undo the damage he’s responsible for.  

Maybe the most exasperating aspect of the tax is how much pain its causing for a relatively insignificant impact on the state’s budget picture. The tax is projected to raise about $13 million in total revenue—representing only 2 percent of the $650 million tax increase package. This figure is also $7 million less than what the state just committed to Aramark. Is there a better example of government playing favorites?

Gov. Wolf has made a conscious choice to treat some businesses and people better than others. Aramark and Amazon—they get subsidies. Vape shop owners—they get a platitude-filled press statement about their concerns. Talk about inequality.

Pennsylvania has a history of handing out corporate welfare. It’s hasn’t worked. And it creates a system people grow to resent—one where government picks winners and losers without worrying about the economic consequences. It needs to end.

If Gov. Wolf and lawmakers want to make things right, they can start by repealing the excise tax and reducing corporate welfare. This will help bridge the inevitable budget deficit, but more importantly, prevent further harm to Pennsylvanians.

posted by BOB DICK | 00:19 PM | Comments

Facing Likely Deficit, Lawmakers Should Reduce Spending

AUGUST 31, 2016

Fiscal responsibility is at a premium across the country, and Pennsylvania is no exception.

In June, lawmakers passed a budget that increased spending by $1.6 billion. Weeks later, they passed a revenue package, which included a $650 million tax increase to pay for more spending.

Yet, the budget still remains unbalanced. We have already mentioned how how the fiscal plan relies on a $200 million loan and other questionable revenue assumptions. 

Now, a new analysis from the Independent Fiscal Office (IFO) explains that some of the revenue Gov. Wolf and lawmakers are counting on to balance the budget may not materialize.

Below is a look at the projected deficit using the IFO’s numbers, contrasted with the General Assembly’s estimates.

2016-17 Budget Picture (in thousands)
  Official Estimates (July 2016) IFO Estimates (August 2016)
Beginning Balance $1,991 $1,991
Total Base Revenue $31,559,653 $31,553,400
One-time/New Revenue $1,216,850 $957,000
Less Tax Refunds ($1,300,000) ($1,300,000)
Prior Year Lapses $57,400 $57,400
Funds Available $31,535,894 $31,269,791
Total Spending $31,533,732 $31,533,732
Balance $2,162 ($263,941)
Sources: Independent Fiscal Office; Senate 2016-17 General Fund Financial Statement

The table contains various assumptions, which explain the differences among estimates:

  • The legislature’s base revenue figure (the amount of revenue expected before any policy changes & based on economic growth) is $6 million higher than the IFO’s estimate.
  • The most significant difference is between the "One-time/New Revenue" estimates. Lawmakers estimate policy changes will raise approximately $1.2 billion. The IFO, using more reasonable assumptions, projects the changes will raise just $957 million. Here are the major assumptions explaining the disparity:
    • The IFO deducts $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have said they want to pass a gambling expansion to generate $100 million to cover CFA spending, but this is far from certain. 
    • IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million, a $76 million difference.
    • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
    • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate—they do not expect that to occur during the current fiscal year. 

So what’s the major takeaway from the IFO’s estimates? Lawmakers must figure out how to eliminate a $264 million deficit this year. Liquor modernization, tobacco taxes, and gaming may bring in enough revenue to balance the budget, but in the likelihood it doesn’t, lawmakers should be ready to reduce spending to match revenues.

posted by BOB DICK | 11:43 AM | Comments

Podcast: How Money Walks Out of Pennsylvania

AUGUST 24, 2016

Last year, nearly 42,000 Pennsylvanians left the state to pursue their dreams elsewhere—that's one person every 12 and a half minutes. Why is money walking out of Pennsylvania?

That’s the topic of the second episode of Commonwealth Insight, our new, bi-weekly podcast featuring state and national entrepreneurs, policy makers, and thought leaders tackling issues critical to Pennsylvania's economic future.

First, we talk with Travis Brown, Forbes contributor and author of How Money Walks, who says Pennsylvanians are “voting with their feet and taking their wallets” to states like Florida, North Carolina, and Arizona because of our state’s tax burden.

He explains that states compete with each other to attract investment and residents:

Just like the Steeler Nation would look competitively across state lines and do the scouting and reporting to see how we can be better and better next year against the New England Patriots, every competitor would look to the North and say: How can we attract these residents and how do we keep the residents we have?

Travis says there are three major policy areas Pennsylvania can change to be more competitive: regulation, taxation, and litigation.

To reverse out-migration and make Pennsylvania attractive to families and businesses, we must avoid higher taxes, more government spending, and greater regulation.

We also talk with Bob Dick, senior policy analyst for the Commonwealth Foundation, about how the Pennsylvania state budget works—and doesn’t work. Bob says state spending is growing beyond its citizens' ability to fund it, resulting in tax hikes that kill jobs and slow private sector growth. The politically unpopular, but fiscally responsible, solution is to control spending.

Click here or listen below, and stay tuned for more by subscribing on iTunes, SoundCloudGoogle PlayStitcher, or via RSS.

posted by DOUGLAS BAKER | 01:57 PM | Comments

Total Records: 519

Media contact:
media@commonwealthfoundation.org

(O) 717-671-1901

Who are We?

The Commonwealth Foundation is Pennsylvania's free-market think tank.  The Commonwealth Foundation transforms free-market ideas into public policies so all Pennsylvanians can flourish.