Pennsylvania State Budget
As expected, a cornerstone of Gov. Wolf’s budget proposal is a massive increase in state support of public schools. The administration seeks a $1.1 billion increase over the record-high funding levels passed at the end of 2015.
Wolf also demands supplemental spending in the 2015-16 fiscal year based on a “framework budget agreement” from last November. Seemingly everyone except the governor’s office knows the framework agreement has collapsed, yet Wolf is still baking these increases into his 2016-17 proposals.
The chart below demonstrates Wolf’s continued efforts to spend more money than Pennsylvania taxpayers can afford. When the governor finally signed the majority of HB 1460 at the end of December, the General Assembly agreed to significant increases in Basic Education, Special Education, and Pre-K programs. Still, Wolf clings to the more expensive framework budget—insisting that these supplemental appropriations be signed into law.
(Note: Basic Education includes the Ready to Learn Block Grant, and Pre-K includes the Head Start Supplemental Assistance and Pre-K Counts line items).
Contrary to the rhetoric from the administration, Pennsylvania schools are not underfunded. The commonwealth ranks 10th in the nation in public school revenue, with per-pupil spending exceeding the national average by $3,400.
In a bizarre news twist, Gov. Tom Wolf is threatening to veto a bill because...well, reasons. According to the AP:
Democratic Governor Tom Wolf says he will veto legislation passed by the state House to restore nearly $1 billion for state prisons.
The Wolf administration says payments for prison costs will continue, regardless of the veto.
- To recap, Gov. Wolf line item vetoed more than $900 million in funding for prisons—nearly half of the entire Corrections budget.
- Wolf asked the State Treasurer to release that funding anyway.
- The House passed a bill to restore the funding.
- Wolf is promising to veto that funding again.
- Wolf is saying Treasury will send the money anyway, regardless of the veto.
It's a mystery why Wolf would choose to veto Corrections funding that was agreed to as part of the budget framework.
On Monday of this week, the Senate held a hearing about the Governor's ability to fund programs without legislative approval—or even after he disapproved the funding.
The conclusion—that the Treasurer believes in areas affecting the "health, safety, and welfare" of the commonwealth, the governor can indeed spend beyond what has been approved—was baffling to many lawmakers.
Indeed, it would seem to threaten our constitutional balance of powers. If this is the case, why bother to have a state budget at all?
Much has been made of the state’s structural deficit, which amounts to about 3 percent of Pennsylvania's total operating budget.
Unfortunately, Gov. Wolf can't envision a scenario in which government adopts reforms to bring expenditures in line with revenues, even if it means just a 3 percent "cut" (more on that below).
Instead, the governor cites the deficit endlessly as a justification for imposing tax increases on working people. In fact, he issued a dire warning about the state’s budget deficit during his budget address on Tuesday:
This deficit isn’t just a cloud hanging over Pennsylvania’s long-term future. It is a time bomb, ticking away, right now, even as I speak.
He went on to reprimand the legislature for failing to deal with this “time bomb”:
But instead of finding a sustainable way to deal with our deficit, Harrisburg chose to paper over the problem with a series of budgetary gimmicks and quick fixes.
The two quotes above give the impression that the governor understands the deficit and has a real plan to eliminate it. However, a seemingly innocuous line from a Capitolwire story (paywall) shatters such an impression:
Budget Secretary Randy Albright did note that even if all of Wolf’s proposals are adopted, more work will be necessary to control growing government costs as a structural deficit is projected to return in the 2017-18 fiscal year.
This is an amazing admission. Even if the legislature agreed with Gov. Wolf’s plan to raise taxes by $3.6 billion, the projected deficit would return in the following fiscal year. And because Gov. Wolf has been unwilling to enact the reforms necessary to make government leaner, we should expect more tax increase proposals in 2017.
The governor’s nonexistent plan to eliminate the deficit isn’t the only problem. He’s also misrepresenting what the deficit is. Simply put, the deficit is the gap between projected revenues and spending. In the chart below, the blue shade represents the spending level for the 2014-15 budget year. The red shade represents all new spending above the 2014-15 level.
As the chart shows, the state could increase spending every year and still balance the budget. All lawmakers would need to do is slow the growth in spending. However, more can be done to reduce the cost of government. In a recently released policy memo, we suggest redesigning government not only to avoid tax increases but to start reducing Pennsylvania’s suffocating tax burden.
If Gov. Wolf wants to put Pennsylvania on a sound fiscal footing, raising taxes and increasing spending at the fastest pace in a quarter of a century is not the solution. As his own budget secretary admits, his plan will put us right back in the same predicament next year. How is that a break from the status quo?
More of the same
- Wolf’s proposed budget mirrors what he offered—and lawmakers repeatedly rejected—last year: Massive tax hikes and record spending increases.
- It’s no surprise Wolf didn’t want to give this “repeat” speech on Groundhog Day.
- Wolf’s proposed spending increases continue a long trend. Total state spending increased in 45 of the last 46 years for an inflation-adjusted total of $16,557 more per family of four.
Biggest spending increase in 25 years
- Wolf’s $33.3 billion General Fund budget (including pension payments) represents a 10 percent increase over the budget passed by the legislature in December.
- This is the largest spending increase since 1991-92.
Wolf’s tax hike = $850 more per family four annually
- Including the tax hikes residents will pay in the first half of this year (for the 2015-16 budget), state government will take $1,129 more per family of four over 18 months.
Even more money for public schools
- Wolf’s budget includes a $1.1 billion increase in support of public schools, on top of the record-high level of funding passed by the legislature in December. This increase comes with no accountability measures.
- Wolf wants $400 million more in public school spending for the current school year—which is already more than halfway over.
- Meanwhile, Wolf proposed arbitrary and punitive cuts for public charter schools, including cyber charters.
- New data from the National Center for Education Statistics shows Pennsylvania already spends $3,400 more than the national average per student, including higher per-student funding from state tax dollars.
At least 8 different tax increases, including
- An 11 percent personal income tax hike—retroactive to January 2016 (in other words, you already owe the state more taxes);
- Sales tax expansion to cable TV, movie tickets, and digital downloads;
- Higher taxes on natural gas production, even as the industry is laying off workers across Pennsylvania;
- Higher cigarette taxes and new taxes on other tobacco products, hitting lower-income families the hardest;
- Higher taxes on bank savings and home insurance premiums; and
- New gaming taxes.
Groundhog Day has come and gone, but Gov. Wolf hasn’t stopped celebrating Punxsutawney Phil’s big day. Paying homage to the theme of the Groundhog Day movie, Wolf has trapped Pennsylvanians in a time loop similar to the one that imprisoned Bill Murray's weatherman character–only this time loop is budget-related.
CF’s Matt Brouillette was on the Gary Sutton Show discussing his recent op-ed on PennLive, which asks if Gov. Wolf's second budget address will give taxpayers déjà vu all over again.
Matt notes that despite his pledge to be a “different kind of governor”, Wolf is “doubling down on the same rhetoric, the same approach that, frankly, failed in 2015”. He plans to propose the same historic, broad-based tax hikes on Pennsylvania families–proposals that have failed a total of five times.
What's more, in true Groundhog Day fashion, Wolf is repeating the myths that Pennsylvania’s education funding has been cut and the system is underfunded. Matt dispels this myth, noting Gov. Wolf is the one who “vetoed over $3 billion going to education” which would have “increased [education] spending by over $400 million."
Gov. Wolf also plans to re-propose hitting the flailing drilling industry with a severance tax to “fund education." Not only would this drive out more businesses from Pennsylvania but it would also add $180 million to taxpayers' utility bills.
Instead of repeating past mistakes, Gov. Wolf should break the budget time loop by focusing on resolutions that benefit all Pennsylvanians–such as limiting the unconstrained growth of government spending and cutting corporate welfare subsidies.
Click here or listen below to hear more.
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Last year, Pennsylvania lost one person to another state every 12.5 minutes. In total, the state’s net domestic migration rate was negative: 41,607 more people moved out of Pennsylvania than moved into the commonwealth.
This exodus is nothing new. The state’s net migration rate has been negative since at least 2011.
While Pennsylvania's total population rose last year, growth has been historically slow. The tepid growth is driven by a “natural increase” (more births than deaths) and international migration.
The chart below illustrates this dynamic.
As we've pointed out in the past, Pennsylvania’s projected demographic trends could exacerbate the state’s fiscal problems. Over the next decade, the population will grow older, which could lead to a demand for more government services, with fewer taxpayers to support such demands.
To avoid this fiscal calamity, the state needs to create an environment conducive for strong economic growth. Economic growth fosters self-sufficiency, thereby reducing the need for government assistance (while higher incomes mean greater tax collections too).
This raises an important question: How do policymakers create economic growth and attract more people to Pennsylvania?
It starts with reducing the tax burden on working people. Over the last five years, the states with the largest migration losses had a higher average tax burden (10.93 percent) than the states with the biggest migration gains (8.84 percent).
|State Domestic Migration|
|Ten States with the Lowest Rate of Domestic Migration|
|States||Domestic Migration (2010-2015)||State-Local Tax Burden as a Share of State Income|
|Total pop./Avg. tax burden||-2,304,021||10.93%|
|Ten States with the Highest Rate of Domestic Migration|
|States||Domestic Migration (2010-2015)||State-Local Tax Burden as a Share of State Income|
|Total pop./Avg. tax burden||2,484,218||8.84%|
|Sources: Tax Foundation, U.S. Census Bureau|
Skeptics who dismiss low taxes as a driver of population migration point to another magnet: weather. More people are certainly moving from the Northeast to warmer climates in the South. But this doesn't hold true everywhere. From 2010-2015, Hawaii (14th highest tax burden) and California (6th highest tax burden) collectively lost more than 284,000 people. Meanwhile, North Dakota (33rd highest tax burden), which isn't exactly known for its hospitable climate, gained 53,048 people over the same time frame.
I'd wager most people would prioritize a decent living for their families over the climate in any given state. If they make the former a higher priority, low tax states will, more often than not, be their destination.
The Wolf administration continues to deny basic facts about their original proposed tax hike. Instead of responding with facts, the governor's staff relies on name-calling and personal attacks. The Altoona Mirror published my response (paywall) to the administration's latest attack on CF.
In a recent story about the state budget, Jeff Sheridan, a spokesman for Gov. Tom Wolf, launched personal attacks against the Commonwealth Foundation, while calling factual information we produced “completely false.”
What is Mr. Sheridan disputing? According to the nonpartisan National Association of State Budget Officers (see Table 21 of their Spring 2015 survey of the states), Gov. Wolf’s original proposal for a $4.6 billion tax increase is the largest proposed tax increase in the country—eight times larger than the next-highest increase in Connecticut.
In fact, Wolf’s plan represented a larger tax hike than every other state’s tax increase combined.
Unfortunately for Pennsylvania, Wolf’s press office has a long history of attacking their critics, but a poor record of providing honest information about their harmful tax proposals.
After all, the $4.6 billion tax hike—which would have come to $1,400 per family of four—came straight from the governor’s original budget. All Pennsylvanians benefited when the General Assembly stood firmly against this record-breaking tax increase, which helped earn Wolf the title of most liberal governor in America.
For the governor’s spokesman to deny easily verifiable information and attack the messenger smacks of desperation. What Pennsylvania needs amidst this seven-month budget impasse is honest leadership, not partisanship and petty name-calling.
Upon finally approving the majority of a state budget, Gov. Tom Wolf admonished the General Assembly for "cutting $95 million from public schools." Yet it is the governor himself who is responsible for vetoing $3.1 billion worth of education funding.
In a recent op-ed, my colleague Nate Benefield explains Wolf's misleading budget math:
Wolf is propagating the bold-faced lie that the budget cuts education by $95 million.
In truth, the budget increases public school funding by $400 million. The only education line item reduced is school construction reimbursement. This is not being cut, however. Instead, it’s being funded with state bonds, and school districts will actually get more in construction reimbursements.
This cynical negotiation ploy—intended to force House and Senate leaders to return to the bargaining table—shows Wolf's primary motivation is higher taxes, not higher education spending. By only releasing six months worth of school funding, the administration refuses to fully free the state's budget hostages.
The chart below illustrates Wolf's education cut and how much money he withheld from local districts. (All figures from the Department of Education.)
Pennsylvania's fiscal code is intended to provide lawmakers with instructions for spending funds appropriated in the state budget. But it is also ground-zero for a host of earmarks that funnel limited resources to the priorities of well-connected lobbyists.
CF has identified over $40 million in dozens of earmarks that may or may not serve the best interests of Pennsylvania taxpayers. Projects stealthily embedded in the fiscal code are not subject to a competitive grant process. Take a look at the earmarks listed below:
The fiscal code (HB 1327) passed the House on Tuesday afternoon. It must be approved by the Senate before reaching Gov. Tom Wolf.
Today, the Pennsylvania House passed a revised fiscal code, HB 1327, to implement parts of the state budget. The fiscal code explains how revenues will be distributed, including transfers between funds.
Here's a look at the good parts of this year's fiscal code; provisions that will protect Pennsylvania jobs, improve how we distribute education dollars, and ensure kids won't have to change schools mid-year.
Reset on Natural Gas Regulations: This month DEP (Department of Environmental Protection) finalized new natural gas drilling regulations that are far more stringent. Cost estimates of the regulations range from an estimated $31 million to $2 billion in the first year. The fiscal code instructs DEP to start all over. It also instructs DEP to begin again with separate regulations for conventional drillers, those that have been drilling shallow wells in Pennsylvania for more than a century.
Legislative Input on Pennsylvania's Clean Power Plan: The fiscal code clarifies the legislature's ability to revise a Clean Power Plan written by the DEP for submission to the EPA (federal Environmental Protection Agency). Lawmakers can vote down the plan, giving DEP 60 days to make changes. The Clean Power Plan is fundamentally an effort to eradicate the use of coal—threatening thousands of Pennsylvania jobs—for a negligible reduction in carbon emissions.
Protecting Scholarships for Kids: The governor waited until Christmas Eve to release Educational Improvement Tax Credit authorization letters that allow businesses to donate scholarships. These scholarships allow thousands of low- and middle-income children to find a better or safer school.
The short time to donate could have dramatically reduced the availability of scholarship for students. Thankfully, the fiscal code allows donations to be retroactively applied, meaning kids won’t lose their scholarships because of Wolf’s delays.
New School Funding Formula: The fiscal code defines that the increase (yes, the increase) in basic education funding shall be distributed according to the new, student-based funding formula developed by a bipartisan committee. (“Hold harmless” would remain, guaranteeing school districts what they received in 2013-14, regardless of enrollment changes).
Likewise, the codes provide a student-based funding formula for the “Ready to Learn Block Grant,” which supports students in all public schools, including charter schools. These funding formulas override the arbitrary way Gov. Wolf planned to dole out the funding increases.
Funding Schools for Construction Costs: The code changes the way the state reimburses public schools for construction projects, through the PlanCon program. The legislation authorizes the Commonwealth Financing Authority to issue up to $2.5 billion in bonds (and more, if such a need is determined) to reimburse schools for construction projects.
This essentially moves PlanCon from the General Fund to a capital project (with interest on the bonds to be paid in future budgets). This shifts provides more funding to schools this year; which is why Gov. Wolf’s claim about “$95 million in cuts to public schools” is a complete lie.
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