Pennsylvania State Budget
Governor Corbett's proposed budget of $29.4 billion in general fund spending and $71.8 billion in spending from all funds represents our highest spending levels ever—exceeding years when federal stimulus dollars inflated total spending.
Ceremonies in Punxsutawney have come and gone, but every year Groundhog Day reminds me of the film of the same name—in which Bill Murray lives the same day over and over again. Gov. Tom Corbett's state budget address generated a similar feeling of déjà vu.
The long-term fiscal challenges facing the state cast a shadow over this year’s budget address. Governor Corbett previously signed the first budget in the last 40 years that reduced state spending and has been able to balance the budget without further taxing Pennsylvania’s working families. Today’s budget address continues tha
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Recent headlines have former Gov. Ed Rendell challenging Gov. Tom Corbett on the issue of the deficit he left the current administration. Gov. Corbett has campaign ads stating he closed a $4.2 billion budget deficit. Gov. Rendell recently claimed he left Corbett a $1 billion surplus.
Gov. Rendell’s claim is the easier to address—he is simply using the word "surplus" incorrectly. When he says "$1 billion surplus," he means there was a fund balance just over $1 billion in June 2011—effectively, there was money remaining in the state's bank accounts. But spending exceeded General Fund revenue in each of Gov. Rendell's last 3 budgets.
Make no mistake, by any accounting standards, or just the dictionary, this is considered a "deficit." No business or household could claim to be running a surplus simply because they had some money in their checking account at a certain point in time.
The question is exactly how large the deficit was when Gov. Corbett took office. The "$4.2 billion deficit" comes from Gov. Corbett’s first budget proposal. It is based on the fact that the 2010-11 budget included $2.65 billion in federal stimulus funding, $750 million in one-time revenue, and $665 million in one-time revenue reductions (see page 4 of the slide presentation).
This overstates the amount of cuts Gov. Corbett had to make to balance the budget. As noted above, the state wasn't spending every last dime in 2010-11 (though some lawmakers wanted to), giving some leeway. Revenue also increased in 2011-12, and both Gov. Rendell and Gov. Corbett made some freezes to 2010-11 spending.
By the end of fiscal year 2010-11, the state had spent about $1.8 billion more than it collected in revenue.
Perhaps the most important thing taxpayers should know is that the state has been spending more than it collects in revenue for six straight years. Gov. Corbett's proposed budget would make that a seventh year.
This deficit spending was made possible through temporary federal stimulus funds, one-time transfers from other funds (like the Rainy Day Fund and the MCare Fund), and spending down the remaining fund balance.
Gov. Corbett has done well to balance the budget, given the deficit left to him, without raising the income or sales tax. But we aren’t out of the hole yet, as the state continues to deal with a structural deficit.
Moreover, this problem will only get worse. The commonwealth continues to pay less than it needs to for pension costs, given the artificial caps set by Act 120 of 2010 (indeed, Gov. Corbett’s proposed budget includes lowering these caps further).
Because of rising pension payments, along with welfare spending that continues to grow faster than our economy, the Independent Fiscal Office projects the deficit to grow to $2.1 billion by 2018-19. Years of overspending have created a structural deficit in Pennsylvania, and it's still here.
Pennsylvanians are losing economic freedom according to the Fraser Institute’s annual report, Economic Freedom of North America 2013. The commonwealth is slowly losing ground ranking 33rd in 2009 and dropping to 40th in the latest study.
The index measures the limitations on economic freedom imposed by all levels of government in the 50 U.S. states and 10 Canadian provinces under three broad categories. Pennsylvania performs poorly in each category:
- Size of government: 48th
- Takings and discriminatory wealth redistribution: 34th
- Labor market freedom: 24th
There are several reasons for Pennsylvania’s abysmal performance. Chief among them is Pennsylvania's growing debt and spending, which has created $47 billion in unfunded pension debt and an estimated $1.2 to $1.4 billion budget deficit.
If policymakers want to improve the lives of Pennsylvanians, focus should be on increasing economic freedom and opportunity by enacting pension reform, slowing the growth of overall spending and reducing the size of government.
For more on how to accomplish these goals, check out our newest report: Blueprint for a Prosperous Pennsylvania.
The 2014-15 Pennsylvania State Budget proposal is more than 1000 pages, but we've boiled it down to five facts taxpayers you need to know
1. State Spending is at an All-Time High: The budget proposal increases total spending to $71.8 billion and General Fund $29.4 billion, both are all time highs. That's a 6 percent increase in total spending (which includes increases in transportation spending and federal funds) from 2013-14. The General Fund increase of 3.3 percent exceeds the rate of inflation plus population growth.
Despite union leaders' big lie of "$1 billion cut," education spending is at an all-time high. Governor Corbett's proposal would increase education funding by more than $360 million, with more than $10 billion going to public schools.
2. State Spending Exceeds Revenues. The state will begin next fiscal year with $217 million in the bank (so to speak) and end with $27 million—spending $190 million more than revenues. The budget is also predicated on one-time sources of funding, and “savings” from pension reform (which may not happen) and is contingent on federal approval of Healthy PA to spend federal taxpayer dollars rather than state taxpayer dollars for some Medicaid recipients.
This structural deficit is the result of years of spending beyond our means, and was made possible by the federal stimulus and draining reserve funds. Gov. Corbett has done well to balance the budget without raising the sales or income tax, but we haven’t dug out of that hole yet.
3. Pension Reform Cannot Wait: We agree with Gov. Corbett’s call to "pass pension reform this session." Pennsylvania’s exploding pension liability now stands at $47 billion and will drive up taxes both at the state level and in school property taxes (or require teacher layoffs) if not addressed.
Gov. Corbett proposed short-term relief by contributing less in 2014, but such a proposal will cost more overall if not must be accompanied by long-term pension reform. This should start with a defined benefit (401k) plan for future hires to take politics out of pensions. Refusing to act is, as Gov. Corbett said, “deeply unfair to children, communities, and our schools.”
4. Liquor Choice is Still on Tap: The governor repeated his call from last years’ budget to end the state liquor store monopoly. A majority of Pennsylvanians from all political persuasions agree that the government in the booze business is a lose business. Legislation has already passed the state House, and the Senate should act this year.
5. Obamacare Isn't Free: The budget includes $219 million for Affordable Care Act benefits and more than $39 million to implement the ACA in Pennsylvania. Taxpayers will also shell out more than $109 million in 2013 and 2014 in Obamacare taxes on health coverage for state workers.
Gov. Corbett's budget assumes $125 million in state savings next year if the federal government approves Healthy PA—his application for a waiver to use federal Medicaid expansion money to put newly-eligible recipients into the federal exchange. But he also projects more than $2 billion in new federal funds spent on Healthy PA.
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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.
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