The Commonwealth Foundation, in recent op-eds and website posts, has presented a misleading analysis of the state budget, one that falsely claims that state spending has been increasing relative to the states’ economy. The opposite is true. Between Fiscal Year 2001 and the current fiscal year, General Fund spending has shrunk from 4.74% of state GDP to 4.25% of state GDP.
The Commonwealth Foundation has also been misleading the public by claiming that state is hiding spending on a so-called “shadow budget.” 59% of what they call the shadow budget is not state spending paid for by taxes raised by the state but federal spending that flows through the state. Leaving aside this federal spending, all state spending, including but the General Fund and various special funds, has declined from 7.36% to 6.91% of state GDP between FY 2001 and FY 2018.
Forthcoming proposals by the House Republicans and the Commonwealth Foundation to balance the current year budget by raiding over $2 billion from other state funds is budget gimmickry on steroids, which does not solve the state’s structural deficit and makes it worse in future years. It will also undercut the purpose of many state funds and lead to a co-mingling of operating and capital funds, which is bad budget practice.
The sad truth is that right wing extremists in the House and in advocacy organizations like the Commonwealth Foundation do not really want to solve the state’s structural deficit by raising new recurring revenues. Persistent budget deficits, together with the false claim that the deficits are the result of rising spending, is a cudgel by which the right seeks to reduce state spending far below what is necessary to educate our children, secure our economic future, protect our vulnerable citizens, and insure that our planet remains habitable.
The following is a more detailed response to recent commentary and analysis about the Pennsylvania budget from the Commonwealth Foundation, being promoted by a number of members of the General Assembly.
The assault on truth by political advocates who use new social as well old traditional media to convince their followers has mainly played out in national politics. But where national politics goes, state and local politics is rarely far behind, as a recent, entirely misleading, op-ed on state budget politics by Nathan Benefield of the Commonwealth Foundation shows.
The Commonwealth Foundation has long argued, incorrectly, that recurring budget deficits in Harrisburg are a product of growing state spending, rather than huge tax cuts that cost billions each year while having no discernible impact on job creation. Benefield’s op-ed, and other recent work by the Commonwealth Foundation raises this claim to a whole new level of dissembling, one that leads to policy recommendations that are also misleading.
Is State Spending Growing Faster Than Economic Growth?
The core of Benefield’s argument is in one paragraph that makes the extraordinary claim that state spending has significantly outpaced economic growth: “From June 2015 to June 2016, Pennsylvanians’ personal income grew 2.93 percent and inflation was 1 percent. Yet state spending grew more than 4 percent during this same period. This has been the trend for more than a decade.”
Those claims are, plainly and simply, untrue. No reputable public policy advocacy organization would make them. If one follows the link in the passage above one is taken to a web page that contains a graph that seemingly supports this claim. Yet the graph contains no indication of how its author defines “state spending,” let alone any citations of data sources for state spending, personal income or inflation.
And, if one looks at data from reputable sources, it is clear that these two sentences are, in almost every respect, untrue. To begin with, even for the year the op-ed picks to focus on, the numbers it gives are wrong. General Fund spending increased from 2015 to 2016 by 3.3% not 4%. Moreover, the third sentence is entirely wrong in its larger claim. Over the 15 year period from 2001 to 2016, general fund spending grew by 51.7% while personal income grew by 70%. Thus, as a share of personal income, state spending has declined during this period from 5.1% to 4.6%, a drop of almost 11%.[i]
General Fund expenditures as a share of the state Gross Domestic Product have also declined during this period from 4.74% to 4.3% and, under the budget enacted last month, will fall to 4.25%.
The “Shadow Budget”
Because the Commonwealth Foundation provides no details or sources for the chart on its website that supposedly backs up its claims of state over-spending, it is difficult to know how it reaches a false conclusion. But perhaps it is connected to another attempt to mislead the public. Benefield claims that the General Fund makes up only 40% of state spending. He goes on to say that the state has, in addition to the General Fund, “150 ‘special funds.’” That is true. The state does have a large number of dedicated funds that receive revenues from one or more specific sources and spends those funds on specific projects. For example, the Fish Fund receives about $50 million in revenues from the license fees paid by those who fish, and it spends roughly the same amount on the administration of the fishing laws and the “protection and propagation of aquatic life.” [ii]
With a few exceptions, such as the Lottery Fund and the Motor License Fund, which are intertwined with the General Fund in various ways, these special funds are relatively small and carry out purposes that most Pennsylvanians would find utterly unobjectionable. By calling this a “shadow budget,” Benefield falsely implies that they somehow are hidden from view or oversight. But that is not the case. They are plainly and transparently listed in the Governor’s Executive Budget. And more importantly, taken together, they are a fraction of the General Fund Budget, not more than double it as Benefield suggests.
It’s only when you dig deeper into Commonwealth Foundation reports that you find the source of their misleading claim. Over 58% of what they call shadow state spending is not state spending at all, but federal spending that flows through the state.[iii]
The federal government supports Pennsylvanians through a number of joint federal-state programs that are mostly funded by federal dollars, although that funding is administered by the state. These include Title I funding for elementary and secondary education and grants for higher education and child care, help with heating costs (LIHEAP) and general support for those with low incomes (TANF). The largest share of this federal funding is for the Medicaid program, which provides health care — including much-needed substance abuse treatment — for those who are disabled or have low-incomes, as well as long term and home-based care for the majority of senior citizens receiving such care in our state. Half of traditional Medicaid and 90% of expanded Medicaid in Pennsylvania is paid for by the federal government.
It is outrageous to count as “state spending” the part of the expenditures for joint federal-state programs that are not supported by state taxes but, rather, taxes raised by the federal government. And it is even more outrageous to claim that state spending is rapidly increasing when we are talking about increases in federal spending in Pennsylvania due to the expansion of Medicaid under the Affordable Care Act.
All State Spending Is Growing Slower Than Economic Growth
If one looks at state spending and state spending alone, it simply is not true that the state budget is “out of control.” Counting only the General Fund and other state funds, from fiscal year 2000-2001 to the current fiscal year, the period analyzed by the Commonwealth Foundation, state spending as a share of state GDP has declined from 7.36% to 6.91%. Nor has there been a huge shift from the General Fund to other funds, as the Commonwealth Foundation implies. In FY 2001, the General Fund made up 35.5% of total state spending. In the current year it is only slightly higher at 38.4% [iv]
(And this is a good place to point out that the Commonwealth Foundation supported the Republican effort in Washington to not only repeal the Affordable Care Act but drastically reduce federal support for the Medicaid program. Taken together, these proposals would have cost the state tens of billions of dollars in federal funds over the next twenty years and made the current General Fund deficit seem like a minor bump on the road. No matter how much it bemoans state deficits, when the chance is there to reduce taxes for the very rich, the Commonwealth Foundation has no compunctions about encouraging legislation to make it worse.)
This is, unfortunately, not the first time the Commonwealth Foundation has misled the public by conflating federal and state government. They regularly repeat Tax Foundation claims that the state has the 15th highest taxes of all 50 states.[v]
But the Tax Foundation data includes the taxes Pennsylvanians pay to all levels of government — federal, state and local. Because we are a relatively rich state, we pay a great deal to the federal government. But because state taxes are so low, our wealth is not reflected in the revenues received by state and local governments. If one looks at just taxes paid by Pennsylvanians to state and local government alone, the picture is very different. Those taxes as a share of personal incomes place Pennsylvania 24th of all states, lower than the neighboring states of New York (2nd), West Virginia (5th), New Jersey, (9th), Maryland (11th), and Delaware (13th).[vi]
And if one look solely at state spending, on a per capita basis, Pennsylvania ranks 23rd out of 50 states and the District of Columbia.
Public policy analysis is hard, and even the best-intentioned analysts can make errors. But what we see in this op-ed and in other work by the Commonwealth Foundation is not just mathematical error or mistakes in transcribing numbers, but what appears to be a systematic effort to mislead the public, editorial boards and columnists, and state legislators about the source of our recurring budget deficits. We encourage editorial boards and other media to hold the Commonwealth Foundation, and other organizations to the following standard: data-based claims should state where data come from and how calculations have been performed so that an independent party can reproduce the calculations and draw independent conclusions regarding their factual accuracy. Absent the ability to verify calculations, media organizations should reject data-based claims as unsubstantiated.
The Real Source of Budget Deficits
We have repeatedly argued, with detailed evidence, that since the Great Recession, state budgets have been austere and that our recurrent state deficits are a product of reductions in state taxes, mainly on corporations.[vii]
Our estimate, which we will be revising upwards soon, suggests that reductions in corporate taxes cost the state at least $2.3 billion a year, more than enough to close the budget deficits in the last two fiscal years while leaving an additional $2 billion a year to address the public investment crisis in K-12, higher education and environmental protection. Nothing in what the Commonwealth Foundation has recently written gives us, or should give anyone else, any reason to doubt that conclusion.
The Policy Implications
The Commonwealth Foundation has employed the misleading rhetoric of a “Shadow Budget” and over-estimated the size of that budget for a distinctly political purpose: it is calling for the state to balance the General Fund budget in the current year by borrowing from balances in other state funds. It appears that members of the House of Representatives are at this moment trying to develop a plan to do just that.
There are three very good reasons to oppose the proposal. First, in some cases, there good reasons for the state to maintain balances in some, if not all of the special funds. Some of them, such as the largest one, the Public Transportation Trust Fund, carry out projects that benefit the Commonwealth over a number of years. They are, in effect, partly if not wholly funding multi-year capital expenditures as well as operating expenditures. Good budget practice requires that operating and capital funds not be intermingled. These funds also seek to move projects to completion when the timing is right. The state gains some flexibility in carrying out these projects by accumulating some surpluses.
Second, most of these special funds were created because policy makers believed that some state purposes should be funded not by taxpayers as a whole, but by those who benefit from the actions of the state. That is why the Fish Fund spending is supported by fishing license fees. The Commonwealth Foundation, like most right-wing organizations, has long argued that more of the costs of state programs should fall on those who benefit directly from them. At times we agree. Undermining the mechanisms that make this possible – the creation of separate state funds for certain purposes – directly contradicts this goal.
And third, and most importantly, raiding special funds to balance the budget is not a real solution to our budget problems. It is a one-time fix, since the special state funds can be raided only once, leaving the state short of money to pay its costs next year. Indeed, it not only doesn’t solve the structural deficit in the operating budget, but makes it worse since loans from special funds must be repaid with interest.
The Commonwealth Foundation proposal to raid special state funds to balance the General Fund this year is the kind of budget gimmickry the organization has always denounced, this time on steroids.
So why does the Commonwealth Foundation propose it? For two reasons. First, they oppose new taxation of any kind, both because they believe that taxation depresses economic growth – it does not do so when state spending is focused on investments like education that make us more productive – and because they are defenders of those who pay more in taxes, the rich and corporations.
And, second, for the Commonwealth Foundation and other right wing extremists, budget deficits are a weapon in the fight for cutting expenditures. They want to see the state in perpetual budget crisis so that they can then pull out their tired, dishonest claim that the crisis is the result of increases in state spending.
For them, recurring budget deficits are not a bug but a feature of public policy. That is why their proposed “solution” to the budget crisis we face this year is designed to perpetuate, not resolve, that crisis. Persistent budget deficits, together with the false claim that the deficits are the result of rising spending, are a cudgel by which the right seeks to reduce state spending far below what is necessary to educate our children, secure our economic future, protect our vulnerable citizens, and insure that our planet remains habitable.
[i] Data for General Fund expenditures are from Independent Fiscal Office, Commonwealth of PA Economic and Budget Outlook, Fiscal Years 2016-17 to 2012-22,” November 2016. http://www.ifo.state.pa.us/releases.cfm?id=86. Data for Personal Income were downloaded from the Bureau of Economic Analysis on August 23, 2017. http://bit.ly/2w8h1h9
[ii] Governor’s Executive Budget 2017-2018, p. H26
[iii] See Nathan Benefield, Can Other Funds Help Balance the State Budget, Commonwealth Foundation, August 16, 2017, https://www.commonwealthfoundation.org/policyblog/detail/can-other-funds-help-balance-the-state-budget
[iv] We use the best estimate of state GDP for the current fiscal year as the baseline rather than Personal Income because Personal Income projections are available for the current year. Note that this calculation is based on the Commonwealth Foundation’s own analysis of non-General Fund state spending. We have not yet attempted to replicate their analysis although, given the errors in what the Commonwealth Fund has presented recently, we intend to do so.
[v] Tax Foundation, PA Chartbook, https://files.taxfoundation.org/20170502093643/PA_Chartbook_final.pdf.
[vi] Independent Fiscal Office, State and Local Taxes: A Comparison Across States, May 2017, Table 8, http://www.ifo.state.pa.us/download.cfm?file=/Resources/Documents/SR2017-03.pdf
[vii] See Marc Stier, Is This the Year Pennsylvania Resolves Its Perennial Budget Problem Crisis, Philadelphia Inquirer, December 28, 2016; Marc Stier, Stephen Herzenberg, and Diana Polson, Restoring Confidence in Government: An Overview of the Governor’s Proposed 2017-2018 Budget, http://www.pennbpc.org/sites/pennbpc.org/files/2017BudgetAnalysisFinal.pdf, Marc Stier, Understanding the Numbers in Budget Crisis, http://bit.ly/2vaagOu, among other works.