The Rendell Budget: Would Your Family Spend Money Like This?

The Commonwealth of Pennsylvania had a good tax year – that is, in government collection terms. General Fund revenues will exceed expectations this year by a projected $353 million. But instead of returning that money from where it came – the taxpayers – Governor Rendell wants to spend more money while promising “no new taxes” and an “affordable” budget.

“No new taxes” and “affordable” may sound like good news to taxpayers; however, the governor’s budget is far from affordable or fiscally prudent. In fact, if any Pennsylvania family spent its money like this, it would find itself in dire financial straits very quickly.

Imagine that the Commonwealth of Pennsylvania is just a big family – the CoPA family. The CoPAs expect to earn $25,225 next year, yet they plan to spend $25,425 – $200 more than they will take in. How can the CoPAs spend more than they earn? Well, the CoPAs currently have $204 in their savings account, and they intend to spend all but $4 of it next year.

Sound financially wise? Of course it doesn’t, yet this is exactly how Governor Rendell wants the Commonwealth of Pennsylvania to budget its money. His proposed 2006-07 General Fund budget would spend $25.425 billion, yet state government will collect only $25.225 billion next year – $200 million less. While there will be a projected $204 million in surplus revenues at the end of June this year (i.e., “savings” that aren’t even in the bank yet), Governor Rendell plans to spend almost all of it.

Let’s look at the CoPAs again for a moment. Like most families, the CoPAs are in debt – to the tune of $7,200 to be exact, or more than 28% of their expected annual income. But instead of reducing what they owe, the CoPAs plan to pull out the credit card once again and plunge deeper and deeper into debt.

Governor Rendell is managing Pennsylvania’s finances the exact same way. His 2006-07 General Fund budget proposes issuing another $1.1 billion in general obligation bonds, raising our total outstanding debt to $7.9 billion. Payment on interest for these bonds will be $853 million in 2006-07 and is expected to exceed $1.2 billion by 2010-2011 – when the total debt reaches $9.9 billion. But the borrowing doesn’t stop there. Governor Rendell anticipates borrowing more than we pay off each of the next four years – just as we have done for the past six.

This is hardly a sustainable lifestyle. So what does Mr. CoPA do when he’s pushed traditional modes of borrowing to their limits? He finds other, more creative ways to satisfy his spending habits. Instead of charging the “maxed out” family credit cards, he asks two of his buddies from the local bar for $250 dollars each, and he promises to pay them back with interest.

This is the governor’s proposed “Jonas Salk Legacy Fund.” The $250 million in bonds that would be issued next year to build laboratories and buy equipment for scientists is not a line item in the budget, but will nonetheless have to be repaid by future generations in addition to our state’s official debt via the formal budget.

The Commonwealth Financing Authority (CFA) similarly hides debt for state government. The CFA is authorized to issue $250 million in bonds each year, but is considered “independent,” since its debt is not “tied to the credit of the state.” However, the CFA bonds are paid from the General Fund through the Department of Community and Economic Development, which has an “agreement” with the CFA to provide enough money to pay their debt. The debt owed by the CFA is not listed in the General Fund budget, although the escalating debt payments will also be paid by future generations of taxpayers.

Finally, let us imagine that Mr. CoPA receives a promotion and a healthy raise at work. When a family’s income grows, financially prudent households pay off debt or invest their money wisely. But families like the CoPAS don’t, and Mr. CoPA decides instead to buy a second home and a new car. Instead of reducing his debt, he actually adds to it with his expected windfall.

The Commonwealth of Pennsylvania has made a habit of doing the same. During the economic boom of the 1990s, when state tax revenues were higher than expected, Pennsylvania General Fund spending increased by 55 percent – 30 percent higher than the combined rates of inflation and population growth. When the 2001 recession hit, rather than reducing spending, the state raised taxes, increasing both the current and the future debt of Pennsylvania’s real families.

Now, in 2006, when the economy is generating higher than expected tax revenues, a fiscally wise “head of household” would refund those surplus taxes, reduce the “family” debt, or save more money for a “rainy day.” Unfortunately for Pennsylvanians, Governor Rendell’s budget proposal will spend the savings, borrow more money, add more off-budget debt, and put both the CoPA family and our real families’ finances on increasingly shaky ground.

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Nathan A. Benefield is a policy analyst with the Commonwealth Foundation (, an independent, non-profit public policy research and educational institute located in Harrisburg, PA.