Mid-Year Budget Briefing: $779 Million Projected Overspend

This week is the midpoint of the commonwealth fiscal year, which ends on June 30. Every year, as required by law, the Office of the Budget gives a mid-year budget briefing and traditionally posts the information on their website. This year the briefing wasn't public and as of this writing they hadn't posted slides. A copy provided on request from the Office of the Budget can be viewed Download file here.

Why the lack of transparency? Maybe the administration didn't post the briefing because it is bad news for taxpayers: Pennsylvania state government is set to overspend the annual budget, once again, by a significant $779 million.

The briefing begins by showing a projected $34.3 billion in operating budget revenue, a 2.3% increase over last fiscal year's strong numbers. Cash tax collections through November are up 1.3% over the same period one year prior. So far, so good.

The problems as usual are on the expense side. The enacted General Fund budget was $34 billion, but the administration now estimates needing up to $779 million in supplemental appropriations; that is, a 2.3% overspend. This level of overspending is becoming habitual, and as we pointed out before, hardly accidental.

The briefing blames rising costs in the Department of Human Services and financial pressure on the $2 billion Lottery Fund. Lottery games have always been a potentially unreliable revenue source: if lottery players understood the odds, Lottery Fund collections would be even less.

Even more concerning is the commonwealth's reliance on one-time revenue sources to balance the budget. This creates significant pressure to make up the gap between revenue and spending next year, and again in future years when $450 million in payments from the Pennsylvania Turnpike (borrowing against future toll revenue) ceases. 

On the positive side the briefing notes a declining prison population and lists improving the business tax regime as a 2020-2021 priority.

The best way to keep the state budget balanced is the Taxpayer Protection Act. If passed by the legislature in 2020 and 2021, and approved by the voters, the state constitution would include a limit on annual General Fund spending growth. This would complement the state constitution’s balanced budget amendment, which is sadly too easily circumvented.

Thankfully, the administration is now required to send any year-end supplemental appropriation request to the legislature with an explanation and a set of reform proposals to offset the expense and prevent future overruns. There’s no penalty or enforcement mechanism, however, so more reform is needed.

Reforms like HB 1861 and SB 885, proposed by Rep. Seth Grove and Sen. Kristin Phillips-Hill respectively, would require lawmakers to vote on supplemental spending separately. This heightened level of transparency is necessary to end the disturbing trend of annual overspending.

Update: On January 2nd the Governor's Budget Office posted the 2019-20 mid-year budget briefing slide show.