Budget Deal Autopsy: The Good, the Bad, the Uglyand A Fistful of Unspent Dollars

HARRISBURG, PA — Today, the Commonwealth Foundation offered a brief analysis (with apologies to Clint Eastwood) of the tentative Pennsylvania General Fund budget deal that is currently being finalized in Harrisburg:

The Good (with some caveats)

No new taxes. None of Governor Rendell’s proposed tax increases were included in the agreement. But tax increases were a moot point because taxpayers were over-billed by Harrisburg by $650 million in the 2006-07 fiscal year. Indeed, the policy debate should be over the depth of tax cuts for working Pennsylvanians, not tax increases when excess revenues are flowing into state government coffers.

Independent consideration of most of Rendell’s legislative agenda. With some exceptions, most of Governor Rendell’s legislative agenda will have to be considered independently of the budgeting process. Although the governor was willing to shut down public services and furlough state workers to force his legislative agenda through the General Assembly, the current budget agreement will allow for consideration of his policy priorities on an individual basis.

Spending growth at 5.3%. According to Gov. Rendell, spending will increase 5.3% to $27.5 billion over last fiscal year’s original budget of $26.1 billion. This amount is below the average 6.37% increase in spending during the first four years of the Rendell Administration. Therefore, relative to past budget deals, this budget grows spending at a slower pace. However…

The Bad

Spending growth at 5.3%. Inflation over the past three years was an average of 2.95%; last year it was 1.3%. The 5.3% spending increase is also 68% higher than the 3.15% limit embodied in the Taxpayer Protection Act—a proposal that has co-sponsorship from 30 of 50 state senators.

WAMs and “corporate welfare.” It has been reported that tax revenues used as “walking around money” which is handed out to politically connected businesses and organizations by the governor and legislative leaders will be less than last year’s budget. However, these pork-barrel spending projects are expected to be higher than what was included in the budget passed in the Senate with a 49-1 vote on June 20, 2007.

The Ugly

Largest government takeover of preschool education. Instead of expanding the highly successful and far less expensive Preschool Educational Improvement Tax Credit program, Gov. Rendell got $75 million to dramatically expand the government’s creation of new taxpayer-funded preschools that will force many privately funded schools out of business. The eventual expansion of universal preschool throughout Pennsylvania will cost taxpayers billions of dollars in higher property taxes, while simultaneously running private and religious preschools out of business.

Transportation policy will be set back for decades. Despite the strong recommendation from the Pennsylvania Transportation Funding and Reform Commission that “no additional funding should be provided for highways, bridges and transit unless a series of parallel actions are taken to reform funding structure and a number of transportation business practices” [emphasis added], this proposal not only provides more money, but it dramatically increases taxpayers’ indebtedness and expands the authority and control of the patronage-ridden Turnpike Commission. Pennsylvanians will be paying interest—rather than earning interest from a Turnpike lease—and an opportunity to bring private-sector capital, incentives, and innovations into Pennsylvania transportation policy will be lost. Finally, the entire transportation deal is premised on the tolling I-80, despite clear interpretations of federal law that would prevent such a scheme. What is Plan B if this proposal fails to receive federal approval?

A Fistful of Unspent Dollars

Taxpayer Protection: Rhetoric or Reality? A majority of Senators (30 out of 50) have co-sponsored legislation and a constitutional amendment that, if applied to the current fiscal year budget, would limit the growth in General Fund spending to 3.15%—or $823 million more than the last fiscal year. How these 28 Republicans and 2 Democrats vote on the FY 2007-08 budget will determine if their co-sponsorship of the Taxpayer Protection Act and Taxpayer Protection Amendment is just rhetoric or reality.

Additional borrowing for corporate welfare? Gov. Rendell’s proposals for billions in additional borrowing remain on the table and will be voted on in the fall, including:

• $850 million in bonded debt (or other source of funds) for the Governor’s energy plan to deliver handouts to politically selected alternative energy companies;
• $500 million in bonded debt for the Jonas Salk Legacy Fund; and
• An increase of the debt limit for the Redevelopment Assistance Capital Program, which provides grants to politically selected projects across the state.

Pension and Health Care crisis continues. This budget did nothing to address the multi-billion liability that is continuing to accrue on taxpayers’ backs. The day of reckoning will be upon Pennsylvania very soon.

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The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.

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