Pennsylvania Deficit Watch | January 2009

The Pennsylvania Department of Revenue released the December revenue collections showing state General Fund revenues are $815 million short for the fiscal year to date.

This shortfall exceeds the entire twelve-month shortfalls for fiscal years 1990-91 and 2002-03, respectively—budget cycles which resulted in the two largest tax increases in Pennsylvania history and significantly hindered the state’s economic performance.
In his mid-year budget briefing, Governor Rendell projected that the fiscal year shortfall would reach $1.6 billion. As a percentage of estimates, the current shortfall is ahead of this pace, and a larger budget shortfall is likely.

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Historical Budget Shortfalls: Projected vs. Actual Revenues (Year-to-Date)
(in millions of dollars)

	1990-91		2001-02		2002-03		2008-09
Through:	Shortfall	Percent	Shortfall	Percent	Shortfall	Percent	Shortfall	Percent
December	-$135.80	-2.61%	-$282.10	-3.09%	-$184.10	-1.95%	-$814.48	-6.81%
End of Year	-$666.30	-5.54%	-$1,268.40	-5.95%	-$497.70	-2.28%
	1991 Budget Action	$2.85 B Tax Increase	2002 Budget Action	$600M Tax Increase, $750M Rainy Day Fund	2003 Budget Action	$1.5 B Tax Increase

Governor Rendell’s plan to fix the revenue gap has five parts:

$500 million in budgetary freezes, including $36 million from independent agencies;
$174 million from revenue from Marcellus Shale lease payments;
$101 million in additional lapses;
$375 million from the “Rainy Day Fund” (half of the current fund); and
$450 million from a federal bailout of the states.

However, it is not a lack of revenue, but over-spending which resulted in the current budget deficit:

Between fiscal years 2002-03 and 2008-09, total state spending increased 35.8 percent ($16.2 billion), well exceeding the rate of inflation of 17.4%.
In Government on a Diet: Spending Tips 2008, a report released in February, the Commonwealth Foundation identified billions in potential spending reductions that would not harm Pennsylvania’s most vulnerable citizens in need of taxpayer assistance.
Governor Rendell’s revised budget 2008-09 represents a 1.64% decrease from the enacted budget, but a 2.27% increase over 2007-08; it would be hard to argue we have “cut to the bone.”

Additional Resources

The latest revised budget, with Rendell’s budget freezes (excluding those he is asking of independent agencies, including the legislature and judiciary) is now online. The Commonwealth Foundation has also prepared an Excel file of the revised budget for public discussion.

More Pennsylvania budget resources can be found here.

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The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.