With April collections in the book, the Pennsylvania Department of Revenue reports that state General Fund revenues are $1.1 billion below estimate for the 2009-10 fiscal year.
- Tax collections have been below estimate all ten months of the fiscal year to date. While the budget is predicated on an increase in revenues over last year, revenues have lagged the prior year’s in eight of ten months (March and October, which included $1.8 billion in transfers from other funds and one-time revenue sources, are the lone exceptions).
- In his budget address in February, Gov. Rendell confirmed Commonwealth Foundation predictions that his budget spent too much–projecting the shortfall would reach $525 million by the end of fiscal year 2009-10, which has already been doubled.
- In March, Gov. Rendell’s advisers issued a statement saying they expected state revenues to recover in April, and thus there was nothing to worry about.
|Historical General Fund Budget Shortfalls: Projected vs. Actual Revenues (Monthly)|
|(in millions of dollars)|
|* October 2009-10 includes $1.8 billion in non-tax revenue, largely from transfers from other funds|
Gov. Rendell’s plan to address the current year shortfall included in his proposed state budget include:
- Use of the remaining General Fund balance ($354 million after October transfer of $1.8 billion from other funds)
- $135 million in reductions from the enacted 2009-10 PA budget. However, last year, despite a $3.2 billion shortfall, and a mid-year pledge to make budgetary cuts, the governor and General Assembly failed to reduce spending accordingly.
- In March, the Rendell administration put out a statement expressing optimism they could still balance the PA state budget without tax hikes, this is based on:
- An additional $275 million from the federal government for Medicare Part D reimbursement
- $50 million due to lower than expected refunds from tax returns
- Better collection months, relative to estimate, in the remaining months
In April, the Commonwealth Court ruled that using the surplus from the MCare Fund was illegal and must be repaid; thus creating another $800 million hole in the Pennsylvania state budget.
Gov. Rendell’s proposed 2010-11 Pennsylvania state budget 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.
The time is long overdue to reduce spending to match revenues.
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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.