Policy Memo: Ideas to Balance the 2017-18 Budget

With a spending plan in place, lawmakers should focus on reinventing state government to balance the budget. The failure of last year’s $650 million tax increase shows that only meaningful reforms, not borrowing or new taxes, will lead to financial stability.

End Horse Racing Subsidies

The Race Horse Development Fund is funded by an assessment on slot machines. Horse racing receives nearly $250 million annually, almost one third of the $800 million spent on corporate welfare. Since 2006, Pennsylvania taxpayers have spent $2.7 billion on horse racing subsidies.

• Handouts Instead of Tax Relief
  Legalizing slot machines was intended to reduce property taxes, yet a chunk of the revenue from gambling taxes is diverted to corporate welfare, such as horse racing.
   
• Subsidies are Spent Out-of-State
  A Tribune-Review analysis found a bulk of the prize money went to out-of-state owners, including at least $1 million to the multi-billionaire vice president of the United Arab Emirates. Additionally, an Independent Fiscal Office report found more than 20% of prize money was spent outside Pennsylvania.*
   
• Handouts Prevent Job Growth
  Pennsylvania’s economy is struggling due to a high tax burden, excessive government spending and corporate handouts. We lead the nation in economic development subsidies, yet in 2016 we lost population for the first time in 31 years.
   
• Attendance & Betting on the Decline
  Billions in subsidies have failed to reinvigorate horse racing. A Pennsylvania Gaming Control Board report shows attendance, gross terminal revenue, and taxable handle (wagers) are down from 2015. 

Additional Solutions

• Continue Liquor Privatization
  Privatizing alcohol sales would not only increase revenue, but also reduce PLCB costs. These proposals generate between $1 million and $1 billion in upfront revenues, as well as annual license fees and tax revenues from reduced border bleed.
   
• Prioritize All Spending
  CF has identified roughly $2 billion outside the General Fund for reprioritization. These funds include the Keystone Recreation, Park and Conservation Fund and the Public Transportation Trust Fund.
   
• Adopt Meaningful Long-term Welfare Reforms
  If we are to put our fiscal house in order, addressing long-term growth in welfare, while improving the quality of programs, must be a top priority. The proposed budget calls for $350 million in Medicaid savings, which will require significant reforms. One potential solution is meaningful work requirements. When enacted in other states, these requirements reduced welfare rolls because more individuals found jobs—both saving money and helping families transition from poverty to prosperity.

The state’s budget deficit isn’t the result of taxes being too low. Rather, the state’s troubles stem from surging government spending, which has contributed to slow economic growth and a shrinking population. Lawmakers need to address spending and tax reform to end our perpetual budget crisis.

*Correction: This publication originally stated nearly 30% of prize money is spent out of state. While more than 30% of disbursements go to non-state residents, the IFO estimates only 22% of purse disbursements are actually spent outside of Pennsylvania.