Update on Pennsylvania’s Revenue Shortfall from the Commonwealth Foundation
The Pennsylvania Department of Revenue released the March revenue collections showing state General Fund revenues are $1.61 billion short for the fiscal year to date.
- Governor Rendell has estimated that the fiscal year shortfall will reach $2.3 billion.
- The March collections were $335 million below projections, slightly below the revised revenue estimates. This indicates that the estimated shortfall of $2.3 billion seems to be on target.
- The current shortfall exceeds the entire 12 month shortfalls for fiscal years 1990-91, 2001-02 and 2002-03, respectively—budget cycles that resulted in tax increases (including the two largest in Pennsylvania history), which in turn significantly hindered the state’s economic performance.
|Historical Budget Shortfalls: Projected vs. Actual Revenues (Year-to-Date)|
|(in millions of dollars)|
|End of Year||-$666.30||-5.54%||-$1,268.40||-5.95%||-$497.70||-2.28%|
|1991 Budget Action||$2.85 B Tax Increase||2002 Budget Action||$600M Tax Increase, $750M Rainy Day Fund||2003 Budget Action||$1.5 B Tax Increase|
Governor Rendell’s 2009-10 budget proposes multiple sources to bridge this gap and increase spending to $29 billion next year:
Filling the 2008-09 Shortfall
Enacted budget: $28.3 billion
Estimated Revenue Shortfall: $2.3 billion; filled by:
- Cuts/Freezes from Enacted Budget: $557 million
- Federal Stimulus (Medical Assistance): $1.1 billion
- Prior Year Lapses (money unspent in 2007-08): $91 million
- Rainy Day Fund: $250 million
- Transfer of Marcellus Shale Revenues: $174 million
- Use of Legislative Surplus: $175 million
Appropriations: $29.0 billion
General Fund Revenue: $26.2 billion, includes new sources:
- Natural Gas Severance Tax: $107 million
- Sales Tax (“elimination of discount for timely remittance”): $75 million
- Cigarette Tax (10 cents per pack): $61 million
- Redirect of Cigarette Tax from Health Care Provider Retention Account to General Fund: $198 million
- Other Tobacco Products Tax: $38 million
One-time Revenue Sources:
- Federal Stimulus: $2.4 billion (Medical Assistance, State Fiscal Stabilization)
- Transfer from Health Care Provider Retention: $350 million (included in $26.2 billion revenue)
- Rainy Day Fund: $375 million
However, it is not a lack of revenue, but over-spending which produced the current budget deficit:
- Between fiscal years 2002-03 and 2008-09, total state spending increased 35.8% ($16.2 billion), well exceeding inflation (17.4%).
- In Government on a Diet: Spending Tips 2009, a report released in February, the Commonwealth Foundation identified nearly $5 billion in potential spending reductions in wasteful spending.
- Governor Rendell’s revised 2008-09 budget represents a 1.64% decrease from the enacted budget, but a 2.27% increase over 2007-08. His proposed 2009-10 budget represents a 4.22% increase over the revised 2008-09 budget. It would be hard to argue we have “cut to the bone.”
- More examples of wasteful spending and budget facts can be found at PleaseNoMoreTaxes.org
Governor Rendell’s proposed 2009-10 budget and information on the 2008-09 budget can be found on the Office of the Budget website. The Commonwealth Foundation has also prepared an Excel file of the proposed and revised budgets for public discussion.
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The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.