Pennsylvania Deficit Watch: March 2010 - Commonwealth Foundation

The Pennsylvania Department of Revenue reports that through the end of February, state General Fund revenues are $477 million below estimate for the 2009-10 fiscal year.

Tax collections have been below estimate in all eight months of the fiscal year, and down month-over-month from last year for every month except October, which included $1.8 billion in transfers from other funds and one-time revenue sources.
The 2009-10 budget (passed in October 2009) included tax increases and assumed slight revenue growth.
In his budget address earlier this month Gov. Rendell, confirmed Commonwealth Foundation predictions that his budget spent too much–projecting the shortfall will reach $525 million by the end of fiscal year 2009-10. Based on the latest estimates, and with the two largest revenue collection months yet to come, the budget shortfall will likely surpass this total.

Historical General Fund Budget Shortfalls: Projected vs. Actual Revenues (Monthly)
(in millions of dollars)
	2008-09			2009-10
	Actual	Difference	Percent	Actual	Difference	Percent
July	$1,746.20	($0.08)	0.00%	$1,650.89	($2.11)	-0.13%
August	$1,668.90	($117.50)	-6.58%	$1,605.50	($19.90)	-1.22%
September	$2,343.70	($163.80)	-6.53%	$2,050.36	($118.64)	-5.47%
October*	$1,649.00	($283.40)	-14.67%	$3,519.06	($19.54)	-0.55%
November	$1,640.90	($93.10)	-5.37%	$1,596.92	($56.78)	-3.43%
December	$2,109.00	($156.63)	-6.91%	$1,983.60	($37.20)	-1.84%
January	$2,173.80	($261.74)	-10.75%	$2,075.90	($120.20)	-5.47%
February	$1,502.20	($196.95)	-11.59%	$1,489.60	($102.30)	-6.43%
March	$3,873.30	($336.09)	-7.98%
April	$2,952.00	($942.50)	-24.20%
May	$1,613.30	($287.50)	-15.13%
June	$2,300.00	($415.00)	-15.29%
FY Total	$25,572.30	($3,254.29)	-11.29%	$16,017.70	($476.66)	-2.89%
* October 2009-10 includes $1.8 billion in non-tax revenue, largely from transfers from other funds

Gov. Rendell’s plan to address te current year shorfall include proposed budget include:

Use of remaining General Fund balance ($354 million after October transfer of $1.8 billion from other funds)
$135 million in reductions from enacted 2008-09 budget

However, despite last year’s $3.2 billion shortfall, and a mid-year pledge to make budgetary cuts, the governor and General Assembly failed to reduce spending accordingly.

Gov. Rendell’s proposed 2010-11 acknowledged the long-term fiscal imbalance – namely that the current budget exhausted all the state’s one-time revenue sources, such as the “Rainy Day Fund;” the federal stimulus funding disappears after the 2010-11 fiscal year; and the state faces dramatically higher state pension contributions beginning in 2012-13. However, Rendell’s budget calls for more of the same:

A $1.3 billion increase in General Fund spending.
Reliance on an addition $850 million in federal Medicaid funding, which has yet to pass Congress.
Delaying pension payments, pushing higher costs onto future generations.
New Taxes:
- Sales tax expansion to 74 currently untaxed items & lower rate – generating $531 million in additional revenue next year and $866 million the following year.
- Reduces CNI from 9.99 to 8.99, imposes combined reporting – generating $66 million next year and $167 million the following year.
- New tax on natural gas extraction – $161 million in 2010-11 and $260 million thereafter.
- New cigar/smokeless tobacco tax – $42 million per year.
- Elimination of the vendor discount for sales tax collection – $75 million per year.

With Pennsylvania facing another budget revenue shortfall, now is the time to reduce spending to match tax revenue.

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For more on the PA State Budget, visit CommonwealthFoundation.org/budget

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