Crucial Reforms Needed in End-of-Year Budget

The recently completed state budget will dig Pennsylvania into a deep hole. Lawmakers passed a 7.5% increase in spending. The General Fund budget, including billions in one-time federal funds, is $36.54 billion—up from $33.98 billion last year. The legislature has tried to camouflage the spending hike with an accounting gimmick, moving $1 billion of new spending into the prior fiscal year so it looks like this year’s spending decreased $760 million. 

What’s the upshot of irresponsible and misleading budget practices? Fiscal catastrophe in coming years, and an increased tax burden on Pennsylvanians. As many media outlets noted, using CARES aid to balance the budget means no aid for struggling restaurants; kids struggling with virtual learning; and many other victims of pandemic-induced shutdowns. Here are the five problems in this end-of-year budget: 

1.     The budget sets up a tax hike in 2021 by repeating past mistakes. 

Backfilling the budget with $1.33 billion in federal CARES Act funds, along with more than $2.1 billion in federal funds for Medicaid, leaves a major budget hole for next year and sets up a grim situation for June. In 2009, Gov. Rendell and lawmakers used federal stimulus funds to reduce state funds for public schools and Medicaid spending. After the stimulus aid expired, the media wrongly blamed Gov. Corbett and Republicans for “cutting $1 billion from public schools.” Gov. Wolf may try another tax hike to fill in the gaps and avoid similar accusations. 

2.     The deal provides no help for students and families. 

The November budget includes nothing for students struggling at home as more and more schools close. While other special interests have gotten billions, and school districts have received millions from the CARES Act—even while losing students and closing facilities—parents and students facing additional educational costs and learning challenges have been entirely left out. Shuttered proposals like Back on Track education scholarship accounts were designed to ensure the end-of-year budget takes care of everyone in need. 

3.     Using CARES dollars for ongoing programs could be disallowed

CARES Act funds are limited to costs created by the COVID crisis, and are not intended to plug revenue gaps. The federal government has already barred Pennsylvania from using $300 million to replace slot machine revenue for property tax relief. CARES Act guidance also prohibits the use of funds for the state share of Medicaid or for salaries of employees whose work wasn’t substantially related to responding to COVID. 

4.     The budget deal does provide liability protection, use shadow budget reserves, and makes small cuts to balance the budget. 

Liability protection for businesses, schools, and healthcare providers operating in good faith with COVID recommendations is a positive, though long overdue development. Another positive development: the budget takes $431 million from “shadow budget” reserves, which Commonwealth Foundation has recommended. However, most of this budget’s spending cuts are one-time reductions and don’t provide the long-term solutions the state needs. 

5.     Without restricting supplemental appropriations, Gov. Wolf is likely to “accidentally” overspend again. 

For the last several years, while lawmakers passed a balanced budget and tried to limit spending growth, Gov. Wolf vastly exceeded the amount budgeted for certain programs. This required “supplemental appropriations”: additional, unplanned spending. This includes $400 million in 2017 (for 2016-17 budget), $673 million in 2019 (for 2018-19 budget), and more than $1 billion this year (for 2019-20). This has become a habit of Gov. Wolf’s administration and must now be formally restricted by the legislature.