Fact Sheet
Five Ways to Cut $5 Billion
Tom Corbett campaigned for Governor of Pennsylvania on a pledge not to raise taxes or fees to balance the state’s $66 billion budget. With the loss of nearly $3 billion in federal funding for the FY 2011-12 budget and an exhaustion of one-time revenue sources, Governor Corbett will have to reprioritize all state spending and refocus government on its core functions in order to keep his promise to the people of Pennsylvania.
To this end, here are five ways to cut $5 billion:
Privatize the State Liquor Stores
Onetime Influx—$1.7 Billion
Pennsylvania and Utah are the only two states with complete state control over wholesale and retail sale of wine and spirit. Forty-eight other states rely on the private sector to sell liquor. Privatizing the state liquor stores, while retaining Liquor Control Board enforcement of laws and regulation of alcohol, could generate an estimated $1.7 billion in onetime revenues and millions more in yearly tax revenues to the state. The privatization of the state liquor stores would increase state revenue, lower costs and provide consumers with greater choices and conveniences without sacrificing public safety.
Estimated Yearly Savings—$1 Billion
Pennsylvania gave out the second highest amount of “economic development” funding of any state in the nation in 2009, and has been one of the biggest spenders on corporate subsidies for years. Some examples of this corporate welfare include “green job” subsidies to select companies, taxpayer funding for new sports stadiums and arenas, taxpayer-funded marketing and promotion for select companies and industries, and other programs that redistribute taxpayer’s money to politically favored interests.
Estimated Yearly Savings—$600 Million
The state provides many services that should be provided by private companies. Often taxpayer-funded enterprises compete directly with businesses found in a typical “Yellow Pages” phone book, such as golf courses, hotels and parking garages. Although most examples of direct government competition with free enterprise are found at the county and municipal level, there are a number of state functions that are commonly provided by private enterprises. The Pennsylvania Higher Education Assistance Agency (PHEAA), which competes directly with private loan providers, is one major option for privatization. State parks and museum operations can be leased to private operators, a solution other states have used to reduce costs while preserving state treasures.
Implement Medicaid Reform and Stop Welfare Fraud
Estimated Yearly Savings—$1 Billion+
Pennsylvania Auditor General Jack Wagner found more than 10 percent of Medicaid spending is used on ineligible recipients. Cutting down on fraud and abuse could save the state upwards of $1 billion. Overhauling the Medicaid system and replacing it with one which provides credits for recipients to purchase private insurance would produce further savings and better services for enrollees.
Estimated Yearly Savings—$1 Billion+
Mandating the highest (“prevailing”) wages on all government construction projects over $25,000 has increased labor costs upward of 30 percent over what the private sector pays for the same work. Allowing construction companies to compete for contracts based on market wages would provide services at lower costs to taxpayers.
Total Savings for FY 2011-12-$5.3 Billion
There are additional ways Governor Corbett can reduce spending, provide better services to the people of Pennsylvania, and improve the long-term fiscal health of the Commonwealth.
Expand Educational Choices for Children
Estimated Yearly Savings—$ 500 Million+
Last year, parents saved state taxpayers over $4 billion by choosing charter, cyber or private schools which cost substantial less than the $13,000 per pupil spent by Pennsylvania school districts. Fostering greater competition in education by implementing school vouchers or expanding educational tax credits would provide students with more educational opportunities at a lower cost to taxpayers.
Eliminate “Self-Service” Government
Estimated Yearly Savings—$703 Million
“Self-service” government programs fail to serve the common good, but promote the interests of government officials, protect select businesses, or reward higher spending by local governments. Overbearing professional regulations that benefit the politically connected, non-essential government advertising of things like the Lottery or Groundhog Day, or using tax dollars to create patronage jobs for political allies are examples that should be eliminated.
Reform Corrections without Compromising Public Safety
Estimated Yearly Savings—$380 Million
The cost of Pennsylvania’s prisons has risen 54 percent since 2002, and now stands at $1.9 billion per year. Corrections reforms to improve the justice system including drug courts, sanction reform (determining the sentence length of certain crimes), and implementing electronic monitoring for non-violent offenders would produce substantial savings.
Move to a Defined-Contribution Retirement Plan for Public Employees
Estimated Yearly Savings—$10 Million+
Switching from a defined benefit to a defined contribution plan like a 401k (as the private sector has done) for all new public sector employees would make retirement costs more predictable and affordable for taxpayers.
Reform Transportation Funding and Provision of Services
Estimated Yearly Savings—$138 Million
Utilizing Public-Private Partnerships (P3) for new construction projects and competitive contracting for mass transit would inject private capital into public projects, produce significant savings and improve the provision of public services. Leasing the Pennsylvania Turnpike to a private operation or bringing in private operators of highway rest stops would produce even greater revenue opportunities.
Make Spending More Transparent
Estimated Yearly Savings—$15 Million
Transparency in government spending and instituting performance-based budgeting would help identify and eliminate wasteful expenditures, as has been proven by the 30 states with online spending databases. With little or no accountability currently in place, creating a centralized database for citizens to scrutinize reduces corruption and wasteful spending.
Estimated Yearly Savings—$75 Million
The film tax credit does little to improve the overall economy. The tax breaks given to the film industry could have been used to lower taxes on all businesses, rewarding entrepreneurship rather than lobbying by Big Hollywood.
Reform Long-Term Care Spending
Estimated Yearly Savings—$1 Billion+
Long-term care currently costs Pennsylvanians $6.6 billion per year, making up 40 percent of all Medicaid spending (much higher than the national average). Pennsylvania needs to reduce the number of individuals dependent on the program by adjusting enrollment guidelines to target the truly needy while encouraging more Pennsylvanians who can afford it to purchase private long-term care insurance.
Additional Savings for FY 2011-12—$2.8 Billion
Total Savings for FY 2011-12—$8.1 Billion