Over the past six fiscal years, the commonwealth has spent more than it has taken in. This fiscal gap is projected to widen as expenditures are on pace to grow faster than future revenue. Such a structural deficit poses a threat to the very foundations of economic growth and job creation that lead to prosperity for Pennsylvania’s taxpayers.
From 1970 to 2014, state government spending rose from $4 billion to nearly $67 billion—the highest in state history. Adjusting for inflation, that’s an increase of $3,163 per resident.
This decades-long pattern has placed an undue burden on the backs of state taxpayers. Pennsylvania has the 10th highest state and local tax burden in the nation. Meanwhile, state and local government debt has grown to a combined $125 billion—nearly $10,000 per resident.
High spending, taxes, and debt hinders Pennsylvania families’ opportunities for prosperity. The commonwealth is near the bottom in most state rankings of economic climate and has lagged the rest of the nation in job and income growth for decades.
Unfortunately, the prospects for improvement are overshadowed by the challenges lawmakers face in balancing our state budget.
Recent budgets relied heavily on temporary federal stimulus dollars and one-time revenue sources, creating an imbalance between spending and revenue that has not yet been resolved. Spending on Public Welfare—the largest department in the commonwealth’s budget—continues to grow faster than taxpayers’ income. Debt payments and prison costs continue to eat a large share of the state budget.
The most pressing threat to our fiscal house is a looming public pension crisis. With $47 billion (and growing) in unfunded pension liabilities between the two statewide plans for public employees, state pension contributions will skyrocket by 143% in the next five years.
This report outlines reforms to help build a foundation for lasting prosperity. Our analysis focuses on three categories of reform.
First we address short-term fiscal reforms to deal with challenges facing our state budget. We also identify long-term reforms to bring spending in line with inflation while reducing the size of government and the burden on taxpayers. Finally, we discuss policy reforms aimed at economic growth.
These recommendations include:
- Cut corporate welfare spending—including Redevelopment Assistance Capital Spending, the Commonwealth Financing Authority, and the Horse Race Development Fund—and targeted tax incentives in favor of tax relief for all.
- Utilize part of the legislative reserve fund.
- Reduce reliance on driver charges and general tax revenue to fund mass transit, and shift to greater user fees.
- Allow school districts to use fund reserves to invest in pension funds and receive a credit for their future pension costs.
- Privatize and utilize competitively-bid management contracts for “yellow-pages” government, including state liquor stores, the Pennsylvania Lottery and the Pennsylvania Turnpike.
- Enact comprehensive welfare reform to slow the rate of spending growth while also reducing poverty.
- Enact long-term care reform to encourage private long-term care insurance and reduce reliance on government programs.
- Increase school choice programs to provide families with greater educational opportunities at a lower cost per student.
- Limit future increases in government spending to inflation plus population growth.
- Lower the overall tax burden, rather than relying on economic development programs, to encourage economic growth.
- Enact a Right-to-Work law to make Pennsylvania more competitive with other states in attracting business investment.
Combined, these reforms detail a blueprint for a stable fiscal house that will provide opportunities for prosperity for all Pennsylvania families.