5 Takeaways from Gov. Wolf’s 2019 Budget

1. Dramatic cost overruns lead to a $86 billion budget

Gov. Wolf proposed a $34.146 billion General Fund budget and a total operating budget of $85.804 billion. On paper, this appears to be a $927 million General Fund spending increase, or 2.8 percent.  

However, this ignores a massive amount of cost overruns—or “supplemental appropriations.” Gov. Wolf’s budget includes $495 million in supplemental appropriations, which is spending on top of the budget lawmakers passed last year. In fact, the executive budget indicates that total spending in 2018-2019 will come to $86.3 billion—that’s almost $2 billion more than previously estimated

Such dramatic cost overruns should cast doubt on the legitimacy of Wolf’s current proposal.   

2. State spending growing faster than the economy

Any way you cut it, the spending increase exceeds the rate of inflation and population growth, as outlined in the Taxpayer Protection Act (TPA). The TPA would have limited spending growth to 2.12 percent. Using last year’s enacted budget, that would have limited the General Fund to $33.41 billion.   

On top of the spending increases, Gov. Wolf is moving more spending offline to the “shadow budget.” His proposal calls for paying off debt—from Tobacco Settlement Fund bonds, PlanCon bonds, Growing Greener bonds, and Farm Show lease payments—along with school safety grants and retirement payments by shifting revenue to special reserves. This shift to the “shadow budget” amounts to $187.2 million. 

In addition to shifting revenue, Gov. Wolf’s proposal assumes revenue that is not included in revenue estimates from the Independent Fiscal Office (IFO). In particular, the governor projects $120 million in new tax revenue by raising the state mandated minimum wage to $12 an hour—a proposal both unlikely to pass and unlikely to generate the tax benefits Gov. Wolf expects.  

3. Wolf’s twelfth tax hike & massive new debt

Wolf unveiled a proposal last week to borrow $4.5 billion and impose a 4.5 percent severance tax on natural gas extraction. This would lead to approximately $8 billion in debt payments over 30 years, while imposing an additional tax on natural gas above the impact fee and the already high tax burden companies pay. 

Oddly, this proposal—the twelfth tax hike Wolf has proposed or supported—received no mention in his budget. Gov. Wolf went so far as to say his budget had “no new taxes.” The tax, borrow, and spend proposal had already been panned by lawmakers when it was announced.  

4. Positive steps on corporate tax reform

On the positive side, Gov. Wolf’s proposal lowers the Corporate Net Income Tax from 9.99 percent to 5.99 percent by 2024. In the spirit of making Pennsylvania more competitive, a major theme of Wolf’s speech, enacting tax reform would be a tremendous first step. 

Wolf proposes offsetting the lower rate with mandatory combined reporting

A better solution, and a way to reduce the tax rate further, would be to eliminate targeted tax breaks and corporate welfare subsidies. Instead of government picking winners and losers, we should work to lower the burden of government on all businesses.   

5. A call for further criminal justice reform

Thankfully, Gov. Wolf did challenge lawmakers to build on past “smart on crime” reforms that reduced the prison population while lowering the state crime rate. The governor called for systematic changes to help returning citizens enter the workforce and succeed in their daily lives.  

Those reforms are embodied in the Justice Reinvestment Initiative (JRI) 2. Specifically, the reform package will make our probation, parole, and sentencing system more efficient; reduce recidivism; increase protections for victims; and focus criminal justice resources where they are most needed.  

Bottom line: As a whole, the governor's 2019-2020 budget proposal brings attention to key reform opportunities that will make Pennsylvania a more attractive place to live and work. But the budget also relies on unrealistic revenue assumptions, dramatic cost overruns, and shifting spending to the shadow budget to fund a slew of new program spending. Prioritizing spending to stay within the Taxpayer Protection Act Index and pursuing tax reform offset by corporate welfare reductions can bring renewed prosperity to all Pennsylvanians.

Want to get the latest from CF as the 2019 budget transpires? Sign up for our emails below.