Pennsylvania’s fiscal outlook looks bleak according to a detailed report examining state revenue and spending released by the Independent Fiscal Office (IFO) last week.
The agency projects a general fund budget deficit every year for the next five years. In 2018-19, the IFO projects a budget deficit of almost $2.1 billion. To make matters worse, these projections assume an improvement in economic conditions, which would mean more tax revenue to help pay for state government’s ever-growing expenditures. But such an improvement is far from certain.
This budget shortfall is not a new problem, but one caused by years of overspending. State general fund spending has exceeded state revenue for six consecutive years. This overspending was made possible through federal stimulus funds, along with using the “Rainy Day Fund,” and transferring more than $3 billion from other funds for one-time revenue.
The report hits on the two main causes of Pennsylvania’s structural fiscal problems: welfare spending and employee compensation. Recent news reports have brought renewed attention to the rampant waste and fraud in welfare spending. Lawmakers cannot begin addressing our fiscal cliff without taking steps to address abuses and enacting reforms to mend our safety net.
Further, increases in most areas of the state budget will be dwarfed by massive increases in state pension contributions. The report projects state pension contributions will increase from $1.4 billion to almost $3.4 billion, an increase of nearly 143%. This is why pension reform is critical.
Lawmakers must begin to rein in this out-of-control-spending, as these spending trends are unsustainable, and taxpayers—already burdened with the 10th highest state taxes—cannot be asked to simply pay more.