State Spending Limits: The Real “Road Less Traveled”

In his 2006-07 budget address, Gov. Ed Rendell claimed to be taking the “road less traveled.” But in unveiling his new spending plan, the governor revealed that he is speeding down the same potholed highway of his past budgets. Fortunately, a “road crew” of General Assembly members has been hard at work preparing some “fiscal guardrails” to erect around Pennsylvania’s budget process.

Last November, the Senate amended House Bill 2082, a measure that would slow the annual growth in state government spending. The result – the “Taxpayer Fairness Act” – would limit General Fund spending increases to the lesser of 1) the average percentage change in statewide personal income growth, or 2) the average percentage change in the combined rates of inflation and state population growth, for the preceding three years.

The spending limit is not carved in stone, however. In any given year, the limit could be exceeded with a simple majority vote of the General Assembly in the event of a presidentially declared emergency, a three-fifths supermajority vote in the event of a gubernatorially declared emergency, or a two-thirds supermajority vote in other situations.

Beyond limiting the growth of General Fund spending, the Taxpayer Fairness Act further protects taxpayers in two ways: by providing for a sufficient budget reserve, and by including a mechanism that returns surplus tax revenues (above those needed for the reserve) to taxpayers.

First, the Taxpayer Fairness Act requires that 35 percent of any budget surplus be placed in the Budget Stabilization Reserve Fund (a.k.a. the “Rainy Day Fund”). Thus, in the event of an economic downturn, the governor and General Assembly will have less incentive to raise taxes to make up for budgetary shortfalls.

The remaining 65 percent of any surplus would then be deposited into the newly created Taxpayer Fairness Fund (TFF). However, once the balance of the Rainy Day Fund reaches 7.5 percent of the prior year’s General Fund appropriations, 100 percent of any budget surplus would go into the TFF. Once the TFF’s balance reaches a level sufficient to provide for a personal income tax (PIT) rate reduction of at least 0.01 percentage points, the Taxpayer Fairness Act would then require the PIT rate be reduced the following year.

Despite its many positives, the Taxpayer Fairness Act does not provide ironclad taxpayer protections. House Bill 2082 is a statutory measure that could easily be repealed by a future, spendthrift General Assembly. What taxpayers ultimately need is a constitutional amendment that also requires the General Assembly to obtain voter approval via referendum before exceeding the spending limit.

Nonetheless, House Bill 2082 would be a dramatic improvement over the current budgeting process in Pennsylvania, in which there are no limits on taxing and spending. By way of comparison, Gov. Rendell’s 2006-07 General Fund budget proposal would spend roughly $1.16 billion more next year than this year – a spending increase of approximately 4.8 percent. This is on top of the $3.87 billion (19 percent) increase in General Fund spending enacted over the last three years.

If the Taxpayer Fairness Act were current law, the General Fund budget would be permitted to grow by 3.47 percent, to $25.11 billion – representing a sizeable increase of nearly $843 million, but an amount $315.1 million lower than the governor’s proposal. When coupled with the fact that the governor’s budget anticipates a $469 million surplus for the current fiscal year, it is clear that significant relief could be provided to Pennsylvania taxpayers while still permitting state government spending to increase if necessary.

However, Harrisburg’s “spending lobby” – the state’s government employee labor unions and other groups that profit from continuous and ever-increasing taxpayer subsidies – is attempting to deny Pennsylvania taxpayers the protection of the Taxpayer Fairness Act. The resistance to fiscal restraint in Pennsylvania is led, in part, by labor unions such as the Pennsylvania State Education Association and its parent, the National Education Association (NEA).

Recently, the NEA approved spending $583,000, in part, toward opposing spending limits in states like Pennsylvania in an effort to keep us on the “road most traveled” of higher taxes, more borrowing and increased spending. In the near future, citizens will likely be treated to various anti-Taxpayer Fairness Act television and radio ads – funded by union dues taken involuntarily from teachers’ paychecks.

Of course, no amount of money spent by the PSEA and its tax-guzzling allies can obscure Pennsylvania’s dismal economic and fiscal performance during the past several decades of unabated state government growth. The taxpayers who pay for it already understand the need for the Taxpayer Fairness Act’s “fiscal guardrails” that would truly help steer Pennsylvania onto the real “road less traveled” and toward economic prosperity.

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Grant R. Gulibon is a Fellow with the Commonwealth Foundation (, an independent, non-profit public policy research and educational institute located in Harrisburg, PA.