Memo: The Budget No One Wants

Marc Stier |

To: Editorial boards, columnists, political reporters, and other interested parties

From: Marc Stier, Director, PA Budget and Policy Center

Re: 2021-22 Pennsylvania Budget

Date: June 22, 2021

We may not know the details of the Pennsylvania General Fund budget that the General Assembly will adopt until sometime tomorrow. But the overall shape of the budget is becoming clear. And it is profoundly disappointing.

The General Assembly has roughly $10 billion that could—and should—be used to help those whose lives have been most disrupted by the pandemic and to take major steps towards creating a more just and inclusive economy.

The urgent need for more public investment could not be clearer:

  • Pennsylvania has the most unequal K-12 school funding in the country. Our analysis shows that the average school district has a severe funding gap when measured by state standards. But the gap is ten times as big for school districts with high rates of poverty than school districts with low rates of poverty and twice as large for school districts with the highest shares of Black students than those with the lowest shares of Black students.
  • our state ranks close to the bottom in funding higher education on a per capita basis. Our state colleges are the most expensive in the country relative to median income. And the PASSHE system is about to embrace a self-defeating consolidation of campuses that will accelerate the decline in student enrollment by making college even more costly.
  • Pennsylvania’s roads and bridges are in a terrible state of repair, operating subsidies for our transit systems are running out, and broadband is not affordable for many Pennsylvanians.
  • the state does very little to address the high rates of poverty in both urban centers and rural areas of the state. Other states are far more aggressive in supporting business creation in low-income and Black and brown communities.
  • as the pandemic showed us, our level of public health spending, which ranks close to the bottom of all states, leaves us terribly vulnerable to the spread of disease.
  •  immigrants, documented and undocumented, who do so much to make our economy prosperous, are excluded from most state benefits.

Yet with all these problems—and the obvious need to provide hazard pay to front-line workers and relief to local businesses, those who may face housing eviction and mortgage foreclosure, and others who are still suffering from the impact of the pandemic—the legislative majority appears ready to set aside $6 billion or more of the funding, unspent.

Their justification for doing so is that they expect state deficits to return in future years. They are most likely right that deficits will return. But, for two reasons, that does not justify holding on to federal funds to fill those deficits.

First, the deficits we expect in the future, like those that have plagued the state budget for the last ten years, would not be the product of the recession brought on by COVID-19. They’d be the product of close to ten years of budget shenanigans that have covered over unbalanced budgets with borrowing and one-time revenues and the underestimate of Medicaid caseloads. And ultimately, the deficits will be due to the decision to cut corporate tax rates, which currently costs the state about $4 billion in revenues each year.

And second, using American Rescue Plan funds to back-fill deficits created by bad state fiscal policies is simply not an appropriate use of the funds. Indeed, withholding $6 billion of ARP money to back-fill deficits that weren’t created by the pandemic would violate Treasury department regulations for the use of this money.

No one should be surprised by the budgetary malpractice about to take place in Pennsylvania. We predicted this result in a paper we released in April.

The conclusion of that paper is appropriate at this moment as well.

“Using most or all of the ARP funds to make up for the General Assembly’s reckless financial decisions would confirm the fears of Senator Mitch McConnell, who opposed the ARP on the grounds that states would use the funds to make up for the bad decisions they had made in the past. When Senator McConnell made that claim, he specifically said it was Democratic state legislatures that would use the funds, not for fiscal relief or to help people but to balance budgets, cut taxes or fix pensions that had become dangerously underfunded.

We disagreed with McConnell because we knew that states in general, and Pennsylvania in particular, have real needs, both to make up for tax revenues lost to COVID-19 and to deal with serious short-term and long-term issues. And we still believe his claim that Democrat-controlled states would waste federal funds is tendentious and wrong-headed.

Sadly, it appears that McConnell’s fears about the states using federal funds badly could come true in Pennsylvania—and that if it happens, it will be because of a General Assembly dominated by Republicans.”