In Truth, The PA Budget Is Still Not Done

Marc Stier |

A quick take

If the governor signs the tax and fiscal code bills passed this week, or allows them to become law, a funding plan for the Pennsylvania Budget for 2017-2018 that technically allows for a balanced budget will be complete. But the work of the General Assembly is not finished because this funding plan not only fails to address the long-term budget problems faced by the state, it deepens those problems. The result will be that the fiscal year beginning in July 2018 will be in deficit and that, unless the state changes direction, those deficits will no doubt increase in subsequent years. (Click the title for more)

A genuine bi-partisan effort on the part of the governor, a majority of the Pennsylvania Senate, and what appears to be a majority of the Pennsylvania House sought to enact a shale tax, that is a severance tax on natural gas drilling. That tax would have provided the recurring revenues needed to gradually reduce our long-term structural deficit. But at the behest of the extremists in the Republican caucus, Speaker of the House Mike Turzai and Majority Leader Dave Reed blocked this effort.

The fight for a shale tax continues. We need to keep reminding legislator of both parties that the budget is balanced with the equivalent of string and scotch tape and that the string will break and scotch tape fall off at the start of next year.  And we need to hold Majority Leader Dave Reed to his promise to allow a vote on a shale tax.

Some more details

The genius of the American system of government is that our checks and balances allowsa determined minority to prevent a government from acting in ways that are tyrannical or unwise. But the price of this system is that it also allows a determined minority to block action that is very much in the public interest.

The funding plan for the 2017-2018 Pennsylvania budget that was completed today is a good example. Over the last few years a determined minority of the House of Representatives, led by Speaker Mike Turzai and Majority Leader Dave Reed and their fellow extremists in the House caucus, has continually thwarted bi-partisan majorities in favor of a responsible Pennsylvania budget, one that pays for what it spends with tax revenues rather than with borrowing and fiscal legerdemain.

This year is more of the same. Last February, the governor proposed an austere budget for this year. He proposed to balance the budget by raising $1 billion in recurring revenues, mostly from corporations and businesses, while saving $2 billion in spending. In June, the House and Senate passed a spending plan slightly below that proposed by the governor. It included his proposals for small increases for Pre-K and K-12 education and for human services and incorporated some of his proposed saving.

To fund that budget, the Senate passed a bi-partisan plan that included $571 million in new recurring revenue. The bill finally passed by the House and Senate contains somewhere between $60 and $160 million in new recurring revenue, depending on whether the expansion of gaming opportunities leads to more gambling or just a relocation of where gambling takes place. (We are inclined to believe it will be the latter.)

The rest of the budget is funded with $500 million in transfers from special funds, including the fund that supports medical malpractice insurance, one-time revenues from selling gaming licenses, and a $1.5 billion bond issue backed by tobacco fund revenues that was also included in the Senate plan.

As we have said before, given the depth of the problem created by the revenue downturn and other problems year, as well as the unwillingness of the General Assembly to raise sufficient tax revenues last year or this year, selling bonds to be repaid by tobacco settlement and / or PLCB revenues is a bad idea whose time has apparently come.

To our mind, borrowing to make up for the mistakes of previous years can only be justified if it is part of a long-term plan that does not repeat those mistakes. But not only do one-shot revenues and borrowing not solve the state’s long-term budget problems, they make those problems worse. The budget for the fiscal year beginning on July 1, 2018 is already unbalanced. Next year, the state will have to come up with additional revenues to: (1) pay for increased costs, especially for Medicaid, salaries, and other goods; (2) replace the roughly $600 million in funds provided by one-time revenues or raids on special funds this year; and (3) secure the $200 million or so to replace the money the tobacco settlement or Liquor Control Board provides to the state (or $400 million if the state floats bonds on both revenue sources).

No one expects real-world governments always to act in accord with the ideals taught in public administration schools. But the intransigence of Speaker Turzai and Majority Leader Reed have forced the g and Senate to accept a plan that is not only radically different from that which the governor proposed and the Senate passed, but one that violates those rules at every turn.

This budget year began with Governor Wolf calling for, and receiving Republican approbation for, a plan that closed two-thirds of a $3 billion deficit by spending reductions and government efficiencies. And many of those spending reductions have taken place. But the final result of this long-delayed budget should disappoint all Pennsylvanians. And let us be clear, it is not our system of government that has failed. The checks and balances only work if political leaders with diverse ideals and interests are willing to make reasonable compromises. Governor Wolf, a majority of the Senate, and most House members from both parties were willing to do that. Speaker Turzai, Leader Reed, and their band of Republican extremists were unwilling to be reasonable or to compromise.

They have one more chance to change direction. A shale tax bill has moved out of the House Finance Committee. It is ready for a vote on the House floor and, if Turzai and Reed allow an up-and-down vote on that bill, we believe it will pass. We call on them to allow this vote to occur the week of November 13.