Pennsylvania State Budget




PSEA Spokesman Wins the Pinocchio Award

JULY 29, 2014

Rendell Pinocchio

Readers of PolicyBlog already know that Pennsylvania education spending is at a record high, that state funding to school districts for pension costs is skyrocketing, and that school district spending, revenues and reserve funds are at all-time highs.

That should be enough to stop government union leaders from repeating the $1 billion cut lie...but they're still at it. In fact, a new lie to defend the original lie has emerged.

Talking to Capitolwire (paywall), PSEA spokesman Wythe Keever claims, "No previous administration cited pension funding in order to boost their claims about K-12 funding." 

Lie! "School employees' retirement" has been counted as "Basic Education" by governors Rendell, Schweiker, Ridge, and Casey.

It is preposterous to think that the cost of teachers' pensions isn't part of the cost of education, or that state aid to school districts for pension costs isn't part of state aid to school districts.

State Education Subsidy 2-Color

Of course, this is far from the first lie Wythe Keever has been caught in.

As we recently wrote, Mr. Keever has denied that union dues are used for any sort of political activity—even as his employer, the PSEA, told its members (as required by law) that 12 percent of their dues go to politics.

Wythe Keever also once denied to a reporter that the PSEA was behind mysterious ads claiming school choice would require a tax hike. We later uncovered that the PSEA spent $575,000 from union dues to fund those ads.

That a spokeman for PSEA consistently resorts to outright, provable lies is a telling commentary on how far government union executives are willing to go to advance their policy agenda.

posted by NATHAN BENEFIELD | 04:06 PM | Comments

Leaders Agree: Public Unions Are Blocking Reform

JULY 14, 2014

PA Government Unions

House Majority Leader Mike Turzai took to the podium last week, providing press and spectators his response to the Governor’s criticisms, blue-line budget reductions, and House priorities.

We applaud Rep. Turzai for making paycheck protection among the important issues discussed, stating:

I know there is controversy in respects to the paycheck protection issues, but I think this is important. With respect to the state [union] contracts, at that bargaining table you could've negotiated out the ability to collect political contributions or the ability to collect union dues. 

Despite the sparring between the Governor and state lawmakers, many public officials were united in their belief that public-sector unions are blocking desperately needed pension reform. As Governor Corbett noted, "The out-of-touch, paid union leadership of PSEA sent out an email blast, taking credit for blocking [pensions]. We need to have the public-sector teachers' union in Philadelphia step up and make concessions."

Senator John Eichelberger agreed saying, "When the PSEA brags about stopping reform to the pension system and promotes the unethical practice of having the government collect their political funding, something needs to change."

State Representative Jerry Knowles adds, "The truth is, common sense can't even be heard above the voices of the union leaders and special interests. Union leaders are controlling Harrisburg through the heavy handed tactics of their highly paid thugs and a bottomless pit of money they give to Democrats and a group of liberal Republicans."

Unions aren't just opposed to pension reform; they are blocking a host of needed reforms. Franklin and Marshall College political science professor Terry Madonna explains the union conundrum well in the context of teacher seniority reform,

The problem is, Pennsylvania public unions, particularly the teachers unions, are very powerful, and they have a lot of even Republican support. Now, they could pick up some Democrats, but Democrats in Pennsylvania are often union-backed. I think it’ll be very tough to move that legislation.

The stage is set to end the collection of union political money with taxpayer resources. It's time to restore fairness to the political process in Pennsylvania.

posted by ELIZABETH STELLE | 09:34 AM | Comments

State Education Spending at Record High

JULY 8, 2014

The recently passed Pennsylvania state budget sets a new record for state funding for public schools. The chart below illustrates this growth over the years.

The total budgeted for the 2014-15 fiscal year—$10.04 billion—is $290 million more than the prior year. Indeed, in represents an increase of nearly $1 billion since 2011-12 (Governor Corbett's first budget).

It is even higher than years when state tax dollars were supplemented with temporary federal stimulus funds—$400 million more than the combined total in 2010-11 (and $1.5 billion more when just looking at state tax dollars).

State Education Subsidy

posted by NATHAN BENEFIELD | 02:46 PM | Comments

House Budget Holds the Line on Taxes

JUNE 25, 2014

Pennsylvania State Budget

Yesterday, the PA House of Representatives advanced a $29.1 billion spending bill. This bill could be voted on by the full House today. There is much to like in this budget in terms of fiscal responsibility.

For starters, the $29.1 billion budget represents a 2.1% increase over the 2013-14 passed budget (1.9% when including "supplement appropriations" that are added to 2013-14 spending totals). This increase is less than the rate of inflation and population growth as measured by the Taxpayer Protection Act.

The budget plan also addresses the spending gap without raising any taxes. While it does rely on transfers from other funds, it does not delay pension payments or expand Medicaid.

Underfunding pensions, while making it easier to balance the budget this year, requires higher future payments to make up the difference and lost investment income. Moreover, shifting costs to the federal government via Medicaid expansion would grow the welfare state—hurting Pennsylvanians with higher federal taxes and higher future state costs and harming the poor with low-quality health care—without tackling the necessary reforms to fix a broken system.

Further, the proposed budget and revenue changes include temporarily suspending some targeted tax breaks and reducing some economic development subsidy programs. These programs are generally less effective than lower tax rates across the board in encouraging job growth and making Pennsylvania more economically competitive.

Finally, the proposed budget would use $380 million in revenue from liquor privatization. While recent indications are that liquor privatization seems unlikely to pass the Senate, the House plan sets the right priorities.

Enacting liquor privatization, a reform that the vast majority of Pennsylvania voters want, would deliver greater convenience, selection and prices for consumers. This should be a budget priority given the oft-suggested alternative of job-killing tax hikes.

posted by NATHAN BENEFIELD | 00:40 PM | Comments

5 Ways to Balance the Budget Without Increasing Taxes

JUNE 23, 2014

State spending is at an all-time high, but calls for even more spending persist, despite Pennsylvania’s precarious fiscal situation.

Pennsylvania doesn’t need more government spending to improve the quality of life in our state. In the heat of budget season, this message tends to get lost in the shuffle. This year is no different.

Higer taxes may be on the horizon too. Pennsylvanians labor under the 10th highest tax burden in the country, but that hasn’t stopped government unions—and their allies— from pushing for a $1 billion tax increase.

Instead of sticking taxpayers with the tab, lawmakers should focus on balancing the state’s budget by controlling excessive and harmful spending. Below are five ideas to help achieve this goal.

1. Don’t Increase Spending: A large portion of the nearly $1.3 billion deficit is the result of proposed spending increases in Governor Corbett’s budget. If lawmakers were to forgo the increases, a significant amount of the projected deficit would be eliminated. Government should not be spending money it doesn’t have.

2. Utilize Part of the Legislative Reserve Fund: According to an audit, lawmakers have $153 million sitting in their reserve fund. While a portion of this may be necessary to continue operations during budget disputes, lawmakers should consider transferring some of this money into the general fund to bridge the budget gap. This move is not unprecedented, as reserve funds have been transferred to the Hazardous Sites Cleanup Fund and Accountability Block Grants for public schools.

3. Eliminate Corporate Welfare: Government grants and loans given directly to businesses harm real people and hinder job creation. The Commonwealth Foundation has identified more than $700 million in grants, loans, and special tax credits which should be phased out, preventing taxpayers from having to pay more for years of government overspending.

4. Reform Prevailing Wage Mandates: Pennsylvania’s Prevailing Wage Act mandates contractors pay inflated wages on most state or local government-funded construction projects. Mandating the highest “prevailing” wages on qualifying government construction projects has increased costs by 10 percent to 30 percent more than what contractors would pay workers for identical projects funded with private dollars. If the mandate were ended, taxpayers could save upwards of a billion dollars.

5. Partner with the Private Sector: Pennsylvania owns 117 state parks and 24 museums and historical sites. Contracting out management of these locations would realize real savings and free up revenue for other areas of the budget.

For more ideas on how to fix Pennsylvania’s fiscal problems, read our report, Blueprint for A Prosperous Pennsylvania.

posted by BOB DICK | 02:59 PM | Comments

Lack of Priorities Triggers PA Budget Crisis

JUNE 23, 2014

Pennsylvania has a prioritization problem. Recent controversies about the State Racing Fund and the legislature's reserve fund provide two examples of why Pennsylvania consistently wrestles with budget crises.

Auditor General Eugene DePasquale criticized the Department of Agriculture last week for shifting resources from the State Racing Fund to consultants and other non-related programs. But why does the state have an adviser on horse and harness racing issues when we’re facing a $50 billion pension liability? A liability that caused both Moody’s and Fitch to downgrade Pennsylvania’s bond rating, while Standard and Poor’s rated Pennsylvania’s fiscal outlook as negative, down from stable.

If Pennsylvania doesn’t prioritize pension reform, its bond rating could be downgraded again, which would increase the cost of borrowing and the likelihood of future budget gaps.

Likewise, it seems imprudent to squirrel away more than $100 million in the legislature's reserve fund. The last budget standoff reportedly cost $50 million in reserve funds. To be fair, lawmakers have allocated reserve funds to General Fund needs in the past. However, the reserve fund's suspicious history is reason for concern. Reserve funds were used for questionable expenditures such as expensive dinners and parking tickets. The most recent audit uncovered $150 for a Starbucks reward card.

On the other hand, taxpayers are facing exploding Medicaid costs with or without Healthy PA. The IFO (Independent Fiscal Office) projects public welfare will grow by 4.9 percent per year for the next five years while state revenues increase by only 3.1 percent.

It’s time to reprioritize the commonwealth’s spending and fund promises before perks.

posted by ELIZABETH STELLE | 00:34 PM | Comments

The Government Union Billion Dollar Tax Hike

JUNE 11, 2014

In 2012, Americans paid more in taxes than they did for food, clothing and shelter combined. In Pennsylvania, residents labor under the 10th highest tax burden in the country. Put simply, Pennsylvanians already pay too much in taxes.

Yet government union executives, who pretend to be champions of the middle class, support increasing taxes on working Pennsylvanians. AFL-CIO executive Rick Bloomingdale explains why in a 2012 speech: "But remember, we [government unions] live off tax revenue."

Mr. Bloomingdale is exactly right: Government unions depend on tax hikes and bigger government to survive.

So it should come as no surprise when the CLEAR Coalition, consisting of Pennsylvania’s largest government unions, who send members' dues to this lobbying and advocacy group, lobbying for Representative DiGirolamo’s alternative budget, which calls for a tax increase of more than $1 billion.

The long list of tax hikes and other revenues in this proposal:

  • Stop the already-delayed phase out of the Capital Stock and Franchise Tax
  • Move to mandatory unitary combined reporting (MUCR) for corporations
  • Eliminate the vendor discount for businesses that collect sales tax for the state
  • "Amazon tax" on Internet sales bought by Pennsylvania residents from out-of-state companies
  • Natural gas severance tax
  • New tax on e-cigarettes and smokeless tobacco
  • Roll back the net operating loss allowance for corporations
  • Cut the Educational Opportunity Scholarship Tax Credit
  • Give the Pennsylvania Liquor Control Board the flexibility to raise prices on wine and liquor
  • Expand Medicaid to get more "federal dollars"

What would be the the impact of this $1 billion government union tax hike?

1) Higher business costs and fewer jobs.

Supporters see businesses tax hikes as a way to make corporations and "the rich" pay their "fair share." But this new revenue doesn't come out of thin air. It requires employers to make cuts elsewhere, often to the detriment of the most vulnerable.

Raising taxes on businesses results in higher prices, forcing consumers to pay more for products and services, and higher utility bills. Further, higher taxes means less money available for businesses to invest and expand, making Pennsylvania less competitive nationally and internationally. This means fewer jobs, lower wages and lost opportunities for workers.

We don't get to witness the jobs that aren't created and opportunities lost because of high taxes, but evidence shows how high taxes (combined with overspending) undermine state economic growth.

2) Ending educational opportunities.

The Opportunity Scholarship Tax Credit offered more than 1,300 students scholarships to their school of choice in its first year by encouraging businesses to donate to scholarship programs.

The OSTC is growing in popularity both among students and businesses. Scholarships for students who need a lifeline from failing and violent schools should not be on the chopping block. Rather, lawmakers should look at other areas of the budget, like corporate welfare and targeted tax breaks, that are ripe for elimination.

3) Consumers will pay more for wine and liquor.

As part of the effort to "modernize" the government liquor monopoly to "act more like a business," the union billion-dollar tax hike would give the PLCB the power to raise prices on wine and spirits to generate more revenue.

In other words, to help fund the highest spending levels in the state’s history, you will have to pay more for your beverages at state liquor stores. This is nothing more than a back-door tax increase.

4) Expanding a broken welfare system.

Medicaid does not provide quality care and perpetuates the poverty trap. Expanding this program to put one in four Pennsylvanians on welfare harms rather than helps the truly needy.

Moreover, Obamacare's Medicaid expansion requires billions in new spending, adding to the program's current unsustainable spending growth. This will increase the deficit and require dozens of new taxes. Leaving future generations to pay for today's bills is the wrong approach to balancing the state budget.

And "savings to the state" are unlikely to materialize as the federal government, which is more than $17 trillion in debt, is already looking at ways to cut their Medicaid spending by shifting more of the cost back to states.

The total tax hike on Pennsylvanians from this union leader-backed proposal? – $1.06 billion

Not only are government unions throwing their support behind a $1 billion tax hike, they’re doing so with the help of taxpayer resources. If unions want to campaign for higher taxes on working people, that’s their prerogative; but they should not be using taxpayer resources to aid their campaign.

posted by BOB DICK, NATHAN BENEFIELD | 03:35 PM | Comments

Simple Solutions for Significant State Savings

A Blueprint for a Prosperous Pennsylvania

MAY 15, 2014

Pennsylvania is plagued with budget challenges, but these challenges don't have to defeat us. We have solutions aimed at improving PA's fiscal health while growing its economy. 

In previous blog posts, we've outlined the need to repair individual welfare programs and eliminate corporate welfare, but there are plenty of other areas in the budget ripe for reform. Below are just a few of our recommended solutions to help protect taxpayers from the consequences of fiscal irresponsibility. 

Redirect money from the Legislative Reserve Fund: To alleviate short-term fiscal pressures, and eliminate the need to increase taxes on families, part of the Reserve Fund should be returned to the General Fund.

The General Assembly currently lacks a formal policy to determine the appropriate amount of the Legislature’s financial reserve. An audit of legislative spending highlighted clerical errors such as: summarized credit card receipts, lack of purchase specificity (which led to unnecessary spending on items from parking tickets to dinners), and unidentified employees collecting salaries above the maximum pay guidelines.

This money would be better spent bridging the gap between spending and revenue in next year's upcoming budget.

Change the funding structure of mass transit: Transportation, to the extent possible, should be funded by user fees. Gasoline taxes and vehicle fees represent an effort to do this for road funding. But mass transit funding comes from driver fees and fines, Turnpike toll money, and sales tax revenue. Transit systems should instead be funded through user fees, freeing driver charges to fund the roads they use and moving sales tax revenues back to the General Fund.

Moreover, if users of mass transit shouldered more of the costs of their transportation choices, transit agencies would improve to attract customers with quality service, rather than requiring higher taxpayer subsidies. Competitive contracting of mass transit operations should be used to reduce costs and improve service, saving taxpayers money.

End prevailing wage mandates: Enacted in 1961, Pennsylvania’s Prevailing Wage Act mandates contractors pay inflated wages on most state or local government-funded construction projects. Mandating the highest “prevailing” wages on qualifying government construction projects has increased costs by 10% to 30% more than what contractors would pay workers for identical projects funded with private dollars.

Allowing construction companies to compete for contracts based on market wages would provide services at lower costs to taxpayers. The commonwealth and local governments spent approximately $6.3 billion on construction projects subject to the Prevailing Wage Act in 2012, according to the Department of Labor and Industry. If the mandate were ended, taxpayers could save upwards of a billion dollars.

For more savings solutions, read our latest policy report, Blueprint for a Prosperous Pennsylvania.

posted by JESSICA BARNETT, BOB DICK | 01:15 PM | Comments

Pennsylvania Tops in Corporate Welfare

Part of A Blueprint for A Prosperous Pennsylvania

MAY 14, 2014

Pennsylvania's system of economic development subsidies costs taxpayers hundreds of millions of dollars annually, yet this spending does little to promote overall job growth.

Given the state's fiscal hurdles, ending special subsidies to favored businesses would be a win for both fiscal responsibility and economic growth. Corporate welfare costs taxpayers more than $700 million a year (billions if you include interest from economic development spending bonds and from independent state agencies).

Corporate Welfare Grant & Loan Programs (Operating Budget) 2013-14 Budget (Thousands) 2014-15 Proposed Budget (Thousands)
General & Special Funds
Agricultural Research $787 $0
Agricultural Promotion, Education and Exports $196 $0
Ben Franklin Tech Development Authority Transfer $14,500 $14,500
Commonwealth Financing Authority Transfer $78,019 $82,505
Council on the Arts $886 $886
Discovered in PA Developed in PA $9,900 $9,900
Food and Marketing Research $494 $0
Grants to the Arts $8,179 $8,590
Hardwoods Research and Promotion $350 $0
Industry Partnerships $1,813 $1,613
Infrastructure and Facilities Improvement Grants $19,409 $19,409
Keystone Communities $11,300 $10,799
Keystone Works $1,000 $1,000
Livestock Show $177 $0
Marketing to Attract Business $3,442 $4,586
Marketing to Attract Tourists $7,435 $3,806
Municipalities Financial Recovery Revolving Fund Transfer $7,096 $5,250
New Choices/New Options $500 $0
Open Dairy Show $177 $0
Partnerships for Regional Economic Performance $11,880 $12,380
Pennsylvania First $37,800 $42,500
Pennsylvania Race Horse Development Fund $252,109 $252,159
Tourism-Accredited Zoos $550 $0
World Trade PA $7,296 $7,900
Youth Shows $140 $140
Total  $475,435 $477,923
Tax Credits
Film Tax Credit $60,000 $60,000
Job Creation Tax Credit $10,100 $10,100
Research and Development Tax Credit $55,000 $55,000
Keystone Opportunity Zone $87,400 $87,500
Keystone Innovation Zone $25,000 $25,000
Alternative Energy Production Tax Credit $10,000 $10,000
Total Tax Credits $247,500 $247,600
Total Amount $722,935 $725,523

Not only are taxpayers forking over more than $700 million annually, but these economic development programs don't produce greater job growth—at least not when compared with lowering the tax burden for all. As the chart below shows, the states in the top 10 of economic development spending saw their economies grow at a slower pace than those states in the bottom 10.

Expenditures on Economic Development Programs

Top Ten States

States

Total FY 2007-14

Population

Per-Capita

Job Growth FY 2003-13

Pennsylvania

$5,099,048,477

12,763,536

$400

2.56%

Ohio

$4,635,133,424

11,544,225

$402

-3.60%

California

$4,458,817,000

38,041,430

$117

1.69%

Louisiana

$3,269,130,453

4,601,893

$710

2.47%

New Jersey

$2,891,965,000

8,864,590

$326

-1%

Florida

$2,806,836,571

19,317,568

$145

3.02%

Kentucky

$2,390,976,948

4,380,415

$546

1.81%

Arizona

$2,386,631,775

6,553,255

$364

7.06%

Texas

$2,385,404,844

26,059,203

$92

19.30%

New York

$2,318,185,102

19,570,261

$118

5.38%

Average

$322

3.87%

Bottom Ten States

States

Total FY 2007-14

Population

Per-Capita

Job Growth FY 2003-13

Nevada

$483,109,516

2,758,931

$175

5.03%

New Mexico

$386,315,600

2,085,538

$185

3.38%

Rhode Island

$346,992,377

1,050,292

$330

-3.39%

Maine

$337,491,972

1,329,192

$254

-0.36%

Nebraska

$298,183,050

1,855,525

$161

6.81%

Delaware

$214,754,300

917,092

$234

1.37%

Vermont

$213,484,452

626,011

$341

1.30%

Montana

$197,028,847

1,005,141

$196

12.07%

New Hamphsire

$195,003,279

1,320,718

$148

2.54%

Idaho

$186,680,900

1,595,728

$117

12.49%

Average

$214

4.12%

Source: State Economic Development Expenditure Database, The Council for Community and Economic Research (http://c2er.org); U.S. Bureau of Labor Statistics.

Due to a projected budget deficit of $1.2 billion next fiscal year, Gov. Corbett and lawmakers are looking for areas in the budget to cut. Reducing corporate welfare, which has proven to be ineffective, would be a good first step toward balancing the budget and creating an environment hospitable for job growth.

For more solutions to PA's budget troubles, read our report, Blueprint for a Prosperous Pennsylvania.

posted by BOB DICK | 03:58 PM | Comments

A Blueprint for a Prosperous Pennsylvania: Welfare Reform

MAY 9, 2014

Ending the Cycle of Welfare

Pennsylvania is facing an estimated $1.2 billion deficit next fiscal year. To bring the budget into balance without tax increases or borrowing, spending reforms must be implemented.

In our newest report, Blueprint for a Prosperous Pennsylvania, we suggest a variety of spending reductions and reforms to keep Pennsylvania fiscally solvent while creating conditions for future prosperity. One area driving our fiscal crisis and contributing to the poverty trap is welfare spending.

For 50 years state and federal governments have waged a war on poverty with a plethora of programs and trillions of tax dollars, yet poverty remains. In Pennsylvania, 13.1 percent of residents live in poverty even though Department of Public Welfare spending is the single largest area of the state budget, consuming 40 cents of every dollar state government spends.

Moreover, welfare spending is increasing as a share of the total budget. The Independent Fiscal office projects public welfare to grow by 4.9% per year for the next five years, faster than state revenue growth of 3.1%. While spending grows at unsustainable rates, fraud, waste, and abuse are rampant. To reduce this excess, the state should enforce eligibility standards, and advocate for federal flexibility to encourage employment.

In Medicaid, the largest welfare program, former Auditor General Jack Wagner found error rates exceeding 15%. If Medicaid's error rate were reduced just one-tenth, it would have saved $439 million in FY 2011-12 and $1.9 billion through FY 2015-16. Simply reducing the rate of growth in Medicaid spending would have a dramatic impact on Pennsylvania’s budget picture. If Medicaid spending grew each year by 3%—instead of the 5.7% average annual increase of the past decade—taxpayers would save $3.2 billion by 2017-18

In addition, Pennsylvania should demand flexibility from the federal government to fundamentally restructure the welfare system’s incentives, which encourage waste. People are often punished for earning more income as reductions in their benefits far surpass income gains from promotions or new employment. As a result, recipients are reluctant to risk a guaranteed income for the chance at a higher income in the future.

Encouraging employment should be a goal for all safety net programs, from food stamps to Medicaid. Strengthening work requirements, rewarding long-term employment rather than job searches or work search activities, and enforcing time limits are just a few ways to combat poverty and reduce welfare spending.

Be sure to check back with PolicyBlog for more solutions to Pennsylvania's budget crisis.

posted by ELIZABETH STELLE | 03:06 PM | Comments

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