As Tom Corbett prepares for his move into the Pennsylvania Governor’s Mansion, he must be realizing the magnitude of what he is about to undertake: the governorship of a state that is facing both a short- and long-term fiscal crisis.
Mr. Corbett’s initial budget will be the first “post-stimulus budget.” Over the last three years, the state budget has been balanced with a reliance on a federal government bailout of Gov. Rendell’s overspending. Temporary stimulus funds account for almost ten percent of this year’s $28 billion budget.
Gov. Rendell and lawmakers drained the state “Rainy Day Fund” and other one-time sources for revenue in 2009. In fact, the Commonwealth Court ruled the use of one of these funds must be paid back to the tune of $800 million, adding to Mr. Corbett’s fiscal challenge.
Pennsylvania’s debt burden has also risen; under Rendell, total state debt rose by 74%. Budgeted interest payments tripled, from $300 million to nearly $1 billion this year. The Commonwealth also has a crisis in its Unemployment Trust Fund, owing over $3 billion to the federal government, the third highest amount borrowed by any state.
Mr. Corbett will also face demands for additional transportation funding, after the federal government rejected an ill-advised scheme to toll Interstate 80. Despite being one of the highest spending states on highways, Pennsylvania leads the nation in structurally deficient bridges, and was named by Overdrive Magazine as having the worst roads in America.
Perhaps the most daunting challenge for Mr. Corbett will be the state’s public pension crisis. Pennsylvania’s pension plans for government employees endured enormous losses in recent years. State lawmakers added to the problem, by increasing benefits to state and school employees in 2001 and 2002 and delaying payments into the funds for investment losses and new benefits. State government and school districts will see an estimated $5 billion increase in public pension contributions in 2012—representing nearly $1,400 in higher taxes per Pennsylvania household.
But with great challenges come great opportunity.
Pennsylvania has been the second highest spending state in the nation (trailing only Ohio) in so-called “economic development” incentives to corporations, according to the Council for Community and Economic Research. Yet these corporate welfare programs have not lifted the state from near the bottom of the nation in economic growth. Reducing wasteful spending on these programs, would reduce the coming fiscal crunch by nearly $1 billion.
Mr. Corbett should end debt-fueled spending on such projects as the Arlen Specter Library in Philadelphia, the John J. Murtha Center for Public Policy in Johnstown, and improvements to a baseball stadium in Scranton—just a few of the things that should be immediately cut.
Pennsylvania is one of 31 states with prevailing wage laws, driving up the costs of construction on state and local government projects. Repealing this, as nine other states have done, would save taxpayers hundreds of millions of dollars annually.
Mr. Corbett should continue to press for school choice, including scholarships for students to attend private schools. While educational choice and competition improve student achievement, they also benefit taxpayers. Scholarships and tax credits educate students for a fraction of the $13,000 Pennsylvania public school districts spend per pupil.
Pennsylvania should follow the lead of the private sector, and some other states, and move government workers to a defined-contribution retirement plan, like a 401(k). Only by getting politics out of pensions can the state offer taxpayers both predictable and affordable costs.
Most importantly, Pennsylvania can only end its fiscal crisis through economic growth. The state has the 11th highest state and local tax burden, according to the Tax Foundation, and the 10th highest cost of government, according to Americans for Tax Reform. The result: Since 1990, the Commonwealth has ranked 43rd, 48th, and 47th in job, personal income, and population growth.
The Keystone State has the resources and opportunity to reverse its misfortunes. Tom Corbett owes his election to—and has a mandate to fulfill—his promises of fiscal responsibility and strong leadership.
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Nathan A. Benefield is Director of Policy Research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.