Pennsylvania State Budget
Today, credit rating agency Moody’s downgraded Pennsylvania’s general obligation bond rating from Aa2 to Aa3, citing the state’s use of one-time budgetary stop-gap measures and the continued underfunding of public pensions. This marks the third credit downgrade from ratings agencies in as many years.
A contentious budget season has officially ended after Governor Corbett signed a $29 billion appropriations bill into law. But is it fiscally responsible? And what’s holding up reforms on the major issues, like pension reform, facing taxpayers across the state?
Yesterday, the Pennsylvania House of Representatives advanced a no-tax-increase budget bill. Crucially, this bill addresses funding gaps without relying on more revenue from Pennsylvanians already shouldering the 10th highest tax burden in the country.
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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.
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).
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.
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The Commonwealth Foundation is Pennsylvania's free-market think tank. The Commonwealth Foundation crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.