Pennsylvania State Budget
As Governor Wolf and legislative leaders seek to redesign state government, ending Prohibition-era liquor laws should be without argument. Solution #2: Liquor Privatization
The Commonwealth Foundation has outlined a menu of policy solutions to close the budget deficit without tax increases. Solution #1: Corrections Reform
Conventional governing is hampering Pennsylvania’s progress. Growing state budgets combined with one-time revenue transfers and targeted tax hikes are delaying the structural reforms essential to improving the quality of life for people who live and work in Pennsylvania.
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Earlier this month, House Majority Leader Dave Reed challenged his colleagues to change the way Harrisburg operates: “Now is the time to reimagine and redesign government, our state and our future.” A change in Harrisburg’s culture is surely needed. Decades of high taxes, wasteful spending, and poorly designed policies have sunk the commonwealth’s finances and stymied economic progress.
What's most devastating is when poor policies impact the future of our children—which is why reimagining our education system is so critical. Too often, Pennsylvania’s education model prioritizes systems over students. School officials—rather than parents—are given precedent to make consequential decisions affecting the education of more than 1.7 million students. This top-down management style has produced subpar outcomes in too many schools, forcing parents to seek alternatives to traditional public schools.
Unfortunately, not every family is lucky enough to send their son or daughter to a high-performing school. The education establishment will place the blame on funding shortages, but as my colleague James has noted, education spending is at its highest level ever. School districts spend, on average, $15,800 per student. This figure could always grow higher, but inflating school budgets will only add to Pennsylvania’s high tax burden, without guaranteeing any improvement in academic achievement.
The solution to the state’s educational woes doesn’t require more political control. It requires more parental control. To a limited extent, Pennsylvania encourages parental control with programs like the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC). But more needs to be done.
Every student deserves a quality education. And every family deserves to determine what a quality education looks like. Expanding school choice programs can help make these goals a reality. Putting parents firmly in control of educational decisions has led to improved student outcomes and savings for taxpayers. The latter is especially relevant in the context of the state’s fiscal outlook.
Pennsylvania is staring down a $600 million shortfall for the year, and will need to deal with a projected $1.7 billion projected shortfall in 2017-18. To address these challenges, CF released Embracing Innovation in State Government, detailing how policymakers can reduce state government’s cost to avoid another round of tax increases.
School choice is one of the cost-saving measures included in the report. The costs of the EITC and OSTC represent just a fraction of student funding in a traditional public school. For example, in 2013-2014, the average EITC scholarship was $1,587 per student, whereas funding in a traditional public school exceeded $15,000 per student. Moving students to the less expensive, more effective alternative nets taxpayers significant savings.
Taking a hard look at how Pennsylvania funds education will play a critical role in controlling spending and truly reimaging government.
The Department of Corrections (DOC) recently announced its intentions to close two state prisons and reduce capacity at community corrections facilities (halfway houses). These decisions will cut state incarceration costs—an amount now north of $2 billion—without jeopardizing public safety.
That's a big win for taxpayers and an important move towards redesigning state government to avoid new taxes.
Unsurprisingly, the Pennsylvania State Corrections Officers Association is highlighting the potential for job losses and overcrowding. But these concerns are weak justifications for saddling taxpayers with the costs of two unnecessary prison facilities
Why? The DOC has already promised to move all displaced employees to another position within the department. As for overcrowding, the changes will bring “emergency capacity” up to 92 percent, which isn’t ideal, according to Corrections Secretary John Wetzel, but it also doesn’t constitute a crisis.
Lawmakers can ensure the prison population continues to responsibly decline by adopting the reforms laid out in our policy brief, Embracing Innovation in State Government:
- Ensure individuals are released when they’re eligible for parole. Too often prisoners are kept beyond their minimum sentence without good reason. This additional time in prison costs taxpayers an estimated $69 million a year.
- Base sentences on cost-effective recidivism-reducing sanctions. Judges don’t have access to the pertinent information needed to impose sentences most likely to reduce recidivism. If lawmakers give judges the tools needed to hand down effective sentences, they will be in a better position to move less dangerous offenders out of prison.
- Avoid lengthy prison terms for minor probation and parole violations. According to the Independent Fiscal Office, housing an inmate costs $44,000 more than supervising the average parolee. Ensuring “swift and predictable” sanctions for probation and parole violators can keep people out of prison and drive down costs.
- Properly utilize community correction facilities. DOC is already pursuing this course of action. According to Sec. Wetzel, community correction facilities have not been “yielding satisfactory outcomes.” This is why DOC is cutting facility capacity. Under the department’s plan, people who would normally be sent to these facilities would be supervised by a parole agent at home.
These reforms stem from the Justice Reinvestment Initiative Working Group, which seeks to build on the landmark reforms passed in 2012. These reforms helped reduce the inmate population by 850 in 2015—the largest one-year decline in 40 years.
Reducing overtime pay and merging the Pennsylvania Board of Probation and Parole with the Department of Corrections are two additional ideas not included in our report but worth pursuing. DOC is in the process of addressing the former by filling vacant positions, conducting a staffing analysis to determine the optimal number of employees, and of course closing down two prison facilities.
Senator Stewart Greenleaf introduced the latter reform last session. It passed the Senate on a bipartisan basis, but it unfortunately died in the House. According to the Wolf Administration’s conservative estimate, the merger would save $10 million in the first year of implementation.
By adopting the reforms above, lawmakers can adequately keep Pennsylvanians safe, protect their wallets, and improve the state's unacceptable financial position.
A Philadelphia Inquirer editorial urges optimism about the forthcoming state budget debate. It’s certainly well-warranted. Gov. Wolf and legislative leaders have repeatedly expressed interest in redesigning state government to avoid broad-based tax increases. This is a welcomed departure from past proposals to enact large tax hikes on working Pennsylvanians.
However, the governor still won’t completely rule out tax hikes. He’s likely to propose an energy tax to the delight of the Inquirer’s editorial board, which supports the tax as a way to make natural gas companies pay their “fair share.” This political slogan ignores all of the taxes natural gas companies already pay, including an impact fee, which effectively operates as a 6.9% severance tax.
The board also criticizes the tax relief extended to businesses, asserting this policy failed to stimulate job growth. Sure, businesses did see some relief through the elimination of the capital stock and franchise tax, but Pennsylvania’s overall tax burden ranks 15th highest in the nation. Weak job growth should be seen in light of the commonwealth’s broader tax and regulatory climate. The implication here is that a lower tax burden doesn't grow the economy. The evidence suggests just the opposite.
The editorial's assault on the state's tax structure continues:
Instead, the [tax] cuts lowered the public's quality of life by reducing revenue needed to educate children, fix roads, and provide other services. Business tax cuts account for about half the state's $600 million deficit.
These two sentences are plagued with problems. First, as CF has demonstrated in the past, more education spending does not necessarily lead to improved academic achievement. As a matter of fact, policymakers could improve the educational system while spending less on education if they embraced school choice.
Secondly, the state already has a dedicated source of funding to fix roads. That’s why the state’s gas tax jumped 8 cents to kick off the new year. If more money is needed for transportation, why not embrace public-private partnerships or repeal the prevailing wage mandate?
And third, placing blame for the deficit on tax cuts implies state government hasn’t taken enough out of the pockets of taxpayers. This flatly ignores the state’s overspending problem.
State spending has risen 46 of the last 47 years—climbing by $4,010 per person over that time. Had the state kept spending increases in line with inflation and population since 2000, it would have produced a budget surplus during this fiscal year. With spending increases possible each year, is it really reasonable to say Pennsylvania has a revenue problem?
Finally, the editorial suggests raising the minimum wage to improve residents’ quality of life and make Pennsylvania a destination state. But mandated wage hikes haven’t stop residents from fleeing other states. In fact, of the ten states that saw the biggest declines in state-to-state migration, nine had minimum wages exceeding the federal level. The only exception was Pennsylvania.
In contrast, of the ten states experiencing the largest increases in state-to-state migration, only half mandated wages above the federal minimum. The editorial board correctly identifies the importance of higher wages for Pennsylvania, but their policy prescription will ultimately undermine employment opportunities for the people who need it most.
Thankfully, Pennsylvania's dismal economic rankings are reversible. But turning the tide requires rejecting attempts to solve every problem with more government spending. What's the alternative? Robust economic growth driven by entrepreneurs and consumers pursuing their happiness.
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.
Earlier this month, House Majority Leader Dave Reed challenged his colleagues to change the way Harrisburg operates: “Now is the time to reimagine and redesign government, our state and our future.” A change in Harrisburg’s culture is surely needed. Decades of high taxes, wasteful ...