Pennsylvania State Budget
Democratic gubernatorial candidate Tom Wolf has proposed several new spending initiatives and tax code changes, though specific details remain lacking. To give Pennsylvanians a better idea of the impact of these proposals, we conducted an analysis of his two major education funding proposals. We also analyze his personal income tax proposal, the increase in the income tax rate required to pay for his spending plans, and the impact on taxpayers.
October 8, 2014, HARRISBURG, Pa.—A new analysis of gubernatorial candidate Tom Wolf’s “Fresh Start” plan reveals that Wolf’s spending and tax proposals—$4.6 billion in new spending on education alone—would result in a potential 121% increase to the state income tax rate, bringing it to a whopping 6.8 percent. That’s almost an additional $600
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.
Recent Blog Posts
With an estimated $2 billion "planning deficit" announced this week, one might believe crafting a balanced budget that doesn’t raise taxes is impossible. Yet earlier this year, we released a report identifying reforms that could save taxpayers billions of dollars.
There are many areas where state spending isn't helping Pennsylvanians. For example, over the last eight years, the commonwealth has spent more on so-called economic development than any state in the country, according to the Council for Community and Economic Research. However, such spending has been relatively ineffective. States that spent the most on economic development saw their economies grow at a slower rate than states spending the least on such initiatives.
The root of the commonwealth's budget woes are mandated programs with ballooning costs—costs first ignored by Governor Rendell. Chief among those are increases in pension payments—estimated to grow by $1.7 billion over five years—and the enormous Medicaid program (with $5.8 billion just in General Fund costs), which is set to grow by 3.5 percent next year.
Years of overspending, not "right-wing ideology," have resulted in our current fiscal predicament.
The Governor's Mid-Year Budget Briefing shows that mandated spending cost drivers, such as pensions and Medicaid, must be addressed in order to repair the Commonwealth's fiscal balance.
Balancing the budget without tax increases won’t be easy, but it is possible if officials are willing to take on the spending drivers that have been squeezing taxpayers for decades.
Last week, legislation moved out of the Senate Finance Committee that would set guardrails on state government spending, establish a “Rainy Day Fund,” and, potentially, even send rebate checks back to Pennsylvania taxpayers.
Check out our new Taxpayer Protection Act handout for more information.
So, what are some of the benefits of responsible spending limits?
CF’s Nate Benefield answers in a conversation with radio host Gary Sutton. Listen here:
The Gary Sutton Show airs daily on WSBA 910AM in the York area.
Follow Commonwealth Foundation’s SoundCloud stream for more of our audio content.
We at the Commonwealth Foundation are pleased to welcome State Treasurer Rob McCord to the fight for fiscal restraint.
McCord, along with Auditor General Eugene DePasquale, held a press conference today to raise concerns about state finances. While DePasquale in his role as Auditor General is regularly fighting waste and abuse, such as his audit of Scranton's failing pension plan, this seems to be a first for McCord. The impetus is the state needs to borrow money from the Treasury to pay its bills until taxes roll in.
This is a real concern, but this is far from the first time the state has been in this fix. In 2009 and 2010, Pennsylvania issued "tax anticipation notes"—borrowing funds with interest until enough tax revenue comes in to pay them off. But McCord issued no warning shot then. He simply signed onto the bond issue.
In contrast, the Commonwealth Foundation has been sounding the alarm for years about the state's fiscal health, noting the "Four Alarm Fire" facing our commonwealth, and the frequent bond downgrades we are experiencing thanks to a pension crisis and excessive debt. As we've noted, this problem has been caused by seven consecutive years of spending more than revenue.
Nonetheless, we welcome Treasurer McCord in the fight for fiscal restraint. The treasurer noted, "the state's true financial condition is even worse than it appears because Pennsylvania has papered over its problems by draining other funds to balance the last several budgets."
In other words, this is a long-standing problem caused by decades of excessive spending. We have to put our fiscal house in order.
One good start is the Taxpayer Protection Act, which passed the Senate Finance Committee today. Click here for our fact sheet on that important issue.
Lawmakers should also tackle the critical issue of pension reform. And recent House efforts to reduce the "debt ceiling" on the RACP program—which is essentially borrowing for corporate welfare projects—would be a major step towards fiscal sanity.
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.