In his budget mid-year briefing, Gov. Rendell cited, repeatedly, a Pew study on states’ fiscal outlook. While it is true that Pennsylvania is in better shape than states like California or New York, in terms of budget deficits, the Pew study says little about Pennsylvania’s fiscal health.
For instance, the Pew study gives states low grades if they limit spending increases and tax hikes.
Seventeen states require a supermajority vote by their legislature to enact tax increases, budget bills or both. We looked at supermajority requirements to enact tax increases because finance experts generally agree that this institutional arrangement significantly reduces taxes or constrains a state’s ability to generate greater revenue by increasing taxes.
In other words, Pennsylvania is in better shape because it is easier to raise taxes going forward.
Several of the other measures in the Pew report aren’t very useful either:
- They are backward looking on economic decline during the recession. Given that, states like Pennsylvania that tend to enter recession and leave recessions late will look better. It also doesn’t consider looming costs (e.g. pensions) or state rainy day funds, that I can tell.
- Foreclosure rate is a variable. Making states like Florida, Arizona, and Nevada, that were hit hard by housing crisis look bad. But that is the only sector of the economy they look at, states that didn’t have a housing boom (Pennsylvania, Michigan, Ohio) will look better, even though these states – especially the latter two – have been decimated in other sectors of their economy like automotive manufacturing.
Click here for our news release on the Pennsylvania budget mid-year briefing.