The Solution to Pa.’s Credit Downgrade
Pennsylvania’s irresponsible spending increases have taken their toll – and credit rating agencies have taken notice.
Following a credit downgrade from Standard & Poor’s Wednesday morning, Pennsylvania’s credit now ranks in the bottom five in the nation. The main cause? Structural imbalances resulting in a $2.2 billion deficit, plus unreliable one-time fixes and the state treasurer’s decision to cease an internal line of credit.
As S&P explains:
Factors contributing to the negative balance were due to misalignment of ongoing revenues and expenditures (missed revenue estimates of $1.1 billion and cost overruns of $400 million), not one-time factors.
While the downgrade makes state borrowing more difficult and costly, the real danger lies in repeating the failed policies of passing “recurring revenues” (i.e. taxes) to subsidize soaring spending. For as S&P writes, the commonwealth has a long-time problem of spending beyond its means.
The downgrade largely reflects the commonwealth's chronic structural imbalance dating back nearly a decade, a history of late budget adoption, and our opinion that this pattern could continue.
Pennsylvania’s General Fund spending alone increased $2.9 billion in just the past 3 years. Despite the fact that it cripples economic opportunity, this out-of-control spending is used to justify calls for tax increases. Yet, four tax hikes in the past eight years – including a $650 million tax increase just last year – have shut down businesses and done little to address the massive deficit.
Despite repeated warnings from credit agencies, many elected officials have revamped calls for more borrowing and taxes – the very practices that led to the downgrade and have failed to improve the fiscal position of states like Connecticut and Illinois.
In contrast, the state House recently passed a revenue plan that eliminated the deficit without tax increases. Paired with structural reforms, such as liquor privatization and welfare reform, these are the options that will stimulate job growth in the commonwealth.
It’s up to legislators and Governor Wolf to reverse the tax-and-spend trend and embrace real solutions for Pennsylvanians.