Less than a week before the start of the 2019-20 fiscal year, legislative leaders unveiled a proposed state budget—including both the spending and revenue outline, and several policy changes that would accompany the budget in related legislation.
Here are five things lawmakers should know.
1) Spending Increase Exceeds TPA
The General Fund Budget of $34 billion exceeds the TPA index, representing an increase of 2.59 percent over last year’s total spending (or a whopping 4.70 percent over the enacted budget last year). Under the Taxpayer Protection Act (TPA), state spending increases would be capped (subject to legislative supermajority) to a 2.12 percent increase this year, based on the average inflation and population growth.
The initial reports say the proposed $33.997 billion spending plan is only 1.8 percent more than what the state spent last year (not the enacted budget), but that doesn’t count significant spending increases in the budget.
- In the fiscal code, $220 million in General Fund revenue is being shifted to the Shadow Budget. These dollars will cover debt payments including Tobacco Settlement Bonds, Plan Con Bonds, the Farm Show Lease Payments, Growing Greener Bonds, and provide funding for school safety.
- Approximately $49 million in spending for DCNR and DEP programs are being shifted to special funds in the shadow budget.
- In addition, a yet-to-be-determined number of Human Services costs are being shifted to other special funds.
2) Massive Overspending in 2018-19
Lawmakers will be asked to approve $673 million in cost overruns.
This represents overspending made by Gov. Wolf above the enacted budget that the legislature will make legal with “supplemental appropriations.”
This bumps the 2018-19 spending increase to a whopping 4.39 percent, nearly quadruple the TPA limit. If the TPA were law, both the new budget and the supplemental appropriations would be subject to the requirement of a supermajority vote.
That level of cost overruns makes it appear as though last year’s budget was deliberately underestimated…going into an election year. This overspending without oversight shows why budget process reforms are so necessary (see number 4).
3) Increase in EITC Scholarships
The budget deal reportedly raises the cap for the Educational Improvement Tax Credit (EITC) donations by $25 million. While this is will help thousands of low-income students, it falls well short of the demand for the program.
However, the school code has not yet been finalized, and there is still a chance to push for a more substantial increase.
The EITC and its sister program, the Opportunity Scholarship Tax Credit (OSTC) provide tens of thousands of low-income students with better educational opportunity. By providing scholarships for students to attend private school, these programs have saved taxpayers an estimated $3 to $5 billion since 2002. Yet nearly 50,000 students are turned away every year.
HB 800, passed by both the House and Senate but vetoed by Gov. Wolf, would have increased the EITC by $100 million and included an escalator for future years. Instead of meeting halfway, the budget deal ignores families in need by raising the cap by the same amount as last year’s budget deal. The chart below puts the EITC in context of education funding.
4) Clear need for budget process reforms.
It remains unclear if the budget deal will include any reforms to the broken budget process. More transparency through budget process reforms, requiring a truly balanced budget, and forcing cost overruns (“supplemental appropriations”) to be identified earlier and justified are critical to better budgeting.
Several reforms passed the House last week, but it’s uncertain if those bills will move in the Senate or be part of the budget code bills.
The Taxpayer Protection Act itself—which as a constitutional amendment, doesn’t require the Governor’s signature—has advanced from committee in both the House and Senate, but will likely be put on hold until Autumn.
5) What’s not in the budget deal.
On the plus side, the legislature has eschewed some of Gov. Wolf’s worst budget proposals:
- While Gov. Wolf’s budget address promised “no new taxes,” he had proposed a massive tax and borrowing scheme just a week prior. A part of “Restore PA” he again asked for an additional severance tax on natural gas, to fund $4.5 billion borrowing scheme (which would cost taxpayers $9 billion over 30 years) isn’t included in any budget deal.
- The budget doesn’t include any mandated increase in the state minimum wage. Raising the minimum wage is an ineffective way to actually raise wages, and does little to reduce poverty, while resulting in fewer job opportunities. The Independent Fiscal Office projects Gov. Wolf’s minimum wage mandate would result in 34,000 lost jobs.
- There were rumors that a crippling cap and trade scheme known as the Regional Greenhouse Gas Initiative would be part of the budget deal. RGGI would impose new costs on Pennsylvania families and businesses, while having no impact on global climate. This appears to have been left on the wayside.
A few other priority issues remain to be addressed in the fall.
- Criminal Justice Reform, including the Justice Reinvestment Initiative
- Welfare reforms, including work expectations
- Comprehensive state tax reform
- Public Employee Rights Notification