IFO Report: Deficits Now and In The Future

Marc Stier |

Pennsylvania Budget and Policy Center Director Marc Stier made the following statement following the Independent Fiscal Office release of their Five Year Economic and Budget Outlook:

“The herculean efforts of the Governor and General Assembly to overcome their divisions and reach a budget agreement last year may have enabled legislators to leave town in July. But it left the state with a deficit of at least $524 million for the current year, a projected deficit of at least $1.7 billion for the year beginning July 2017, and budget deficits that grow year after year beyond that.

If the state continues to generate revenue under current laws and maintains the current level of services, the projected deficit reaches $3 billion in 2021-22 and continues to grow by $175 million per year thereafter. 

“That conclusion, which is contained in the new Five year Economic and Budget Outlook released today by the Independent Fiscal Office (IFO), will not surprise anyone who has closely followed Pennsylvania Budget politics or who has paid attention to our warnings about the short fall in revenues this year or about the revenue package adopted in July.

“The $524 shortfall in the current fiscal year is mainly a result of the General Assembly overestimating revenues in three ways:

1. The General Assembly relied on optimistic projections that were higher than those put forth by IFO in June.

2. The slow-down in the economy that reduced revenues in the first few months of the fiscal year is not expected to be offset by faster growth in the remaining of the year.

3. The General Assembly expected to raise $150 million by enacting an internet gaming bill and selling a second casino license in Philadelphia. It appears that neither will happen.

“The shortfall for this year could be exacerbated if the General Assembly enacts a supplement appropriation bill to fill a $366 million gap in human service funding that has arisen mostly as a result of higher case loads than projected for long term care and medical assistance. While some of that gap may be filled by cost savings or additional federal funding, a supplemental appropriation of between $150 and $300 million may be necessary.

“As bad as the short term problem is, the long term problem is even worse. At the beginning of this year, Governor Wolf rightly warned that the long term situation was dire and called for new recurring revenues. And, as we’ve pointed out before, the long term deficit is the result not of higher spending but of ill-advised cuts to corporate taxes. These cuts in corporate taxes reduced state revenues below that necessary to pay for what the state government does now, let alone to restore the Corbett cuts to K-12 education, higher education and human services.

“But the Republican-led General Assembly was unwilling to raise general taxes—the personal income tax, sales tax, or corporate tax. Instead, about half of the revenues it raised for this year came from recurring taxes, mostly on tobacco. (The amount raised from the tobacco taxes is projected to decline over time, however.) The other half came from one-time revenues that either do not help in future years or, because they involve transfers from other state funds that have to be paid back, actually increase the budget deficit in future years.

“The result of ignoring the warnings of the Governor, of us, and of many editorial boards, is that the long term Pennsylvania budget situation remains as threatening as it was last year at this time.

“The only solution is new revenues. The Pennsylvanian Budget and Policy Center will soon be releasing a paper that shows how the state can raise the revenues necessary to close the long term deficit and fund vital programs like those for our kids without raising taxes substantially on working people and the middle class.”