Opportunity Knocks for State Budget Innovation

“Nothing is more expensive than a missed opportunity.” Pennsylvanians should heed these words from author H. Jackson Brown, Jr. in the upcoming budget season. Governor Wolf and key legislative leaders repeatedly called this year’s state budget an “opportunity”—and rightly so.

The governor’s approach this year is vastly different from his 2015 plan, which called for the largest tax increase in state history and triggered the longest budget impasse in modern memory. It’s also a world away from Wolf’s retroactive income tax increase proposal last year.

Instead, Wolf recently promised, “I'm not going to call for an increase in the personal-income tax or sales tax. We have to make sure the Commonwealth lives within its means.” This is a welcome change of heart.

In a matter of months, the policy discussion has flipped from demanding more from taxpayers to cost-cutting and restructuring state government. But closing this year’s estimated $524 million budget shortfall and tackling next year’s estimated $1.7 billion deficit while protecting Pennsylvanians from tax increases is no small task. It will require nothing short of reimagining how government operates.

Luckily, many immediate and long-term solutions exist. If Wolf and lawmakers want reform opportunities with cross-party appeal, here are three not to miss.

First, end unfair taxpayer subsidies to big business.

This year, state government will spend more than $800 million to bolster billion-dollar corporations like Amazon and Netflix, subsidize sports stadiums, and prop up the horse-racing industry.

Pennsylvania leads the nation in these corporate welfare handouts but has little to show for it. Despite more than $6 billion funneled to politically favored businesses since 2007, Pennsylvania trails the nation economically: Between 2005 and 2015, the state ranked just 35th in job growth and 31th in personal income growth.

Meanwhile, the ten states spending the least on corporate welfare from 2007-2015 enjoyed greater job growth than the top ten spenders.

House Majority Leader Dave Reed (R—Indiana) recently expressed interest in reducing corporate welfare spending—a great first step toward alleviating budgetary pressure.

Next, fix Pennsylvanians flawed sentencing system.

Since 2005, corrections spending has spiked 55 percent and is now the third-largest General Fund expense. Despite a welcome drop in the state’s prison population last year, Pennsylvania’s incarceration rate remains the highest among Northeast states. The culprit? Not an abnormally high crime rate but flawed sentencing, according to the Council on State Governments.

This year, inmates will cost the state $48,200 each on average, nearly equaling Pennsylvania’s $53,599 median household income. Parolees, though, cost about 90 percent less—averaging just $4,200. Because probation and parole violators account for nearly one-third of the inmate population, there is a huge opportunity for cost savings. Swifter and more predictable sanctions can prevent parolees from becoming resource-draining inmates, saving tax dollars without compromising public safety.

This is just one of several corrections reforms ripe for implementation as a follow-up to 2012’s universally acclaimed Justice Reinvestment Act.

Finally, Wolf and lawmakers must rein in the shadow state budget.

The General Fund budget, which monopolizes headlines, is just 40 percent of state government’s true $78 billion cost. Hidden in the remaining 60 percent are more than 150 “special funds” whose existence and cost is largely unknown.

These funds have been used, for example, to bankroll pool feasibility studies and golf course acquisitions, subsidize well-paid farmers on the backs of the poor, and funnel additional tax dollars to initiatives already funded through other government means. Worse, these funds are often on autopilot—growing each year without review from elected officials.

Consequently, the commonwealth’s total operating budget has climbed 184 percent since 1970—an inflation-adjusted $3,975 more per person. Redirecting or reducing duplicate and questionable funds will stop the shadow budget from diverting more and more tax dollars each year.

This budget season, Wolf and lawmakers will be tempted to rely on targeted tax increases—like last year’s e-cigarette and digital download taxes—to balance the budget. Indeed, Wolf has already proposed a new natural gas severance tax. If they choose higher taxes over reform, they will once again miss a critical opportunity to change the state’s trajectory. And nothing could be more expensive for Pennsylvanians.