On The Mid-Year Budget Briefing: The Full Picture Is Even More Grim

Marc Stier |

Budget Secretary Randy Albright’s mid-year budget briefing this week brings worrisome news that, at its current level of expenditure and revenues, the Pennsylvania budget for the 2016-17 will have a deficit of $600 million. Part of that deficit is the result of lower tax revenues than were projected when the budget was enacted in July. Another part is higher human service caseloads, which will require a supplemental appropriation.

The projected deficit might increase again if the General Assembly does not enact legislation to bring in $100 million in internet gaming revenues and if a second Philadelphia casino license is not sold for $50 million.

While the current year deficit is a problem for the state, unfortunately it is not the biggest budget problem we face. The Independent Fiscal Office is projecting a 2017-18 deficit of $1.7 billion, which does not include the ongoing costs of higher human service caseloads which might add $300 million or more to the total.

All told, between the current year and next year, the General Assembly may need to close a budget gap that approaches $3 billion by June 30. And, as mandated costs grow faster than revenues, budget deficits in future years will approach that number as well.

The recurring budget problems are not the result of higher spending. As a percentage of the state’s Gross Domestic Product (GDP), state spending fell from an average of 4.71% in the years between 1994 to 2011 to 4.33% during the Corbett Administration. It has stayed at that level in the first two years the Wolf Administration. On the other hand, largely due to reduction in corporate taxes, revenues have fallen faster from 4.89% of GDP between 1994 to 2011 to 4.49% during the Corbett Administration to 4.44% during the Wolf Administration.

The long term budget problem, then, is not something that just happened. It was created by reductions in corporate taxes that were not made up by other revenues. And it has been made worse by the willingness of the General Assembly to plug holes in the budget this year and in previous years by relying on one-time revenues from the sale of licenses, from borrowing from special funds (which must be paid back), and from shifting costs from current to future years.

Despite these budget problems, Governor Wolf and the General Assembly have managed to invest more in education and some human services, such as opioid addiction, while maintaining the state’s commitment to critically important spending for medical assistance and long-term care and to funding pensions. But investments in education and human services have not, in all cases, restored the cuts during the Corbett era. Nor have they provided the new investments we need in education and human services to generate more economic growth and shared prosperity.

The Governor and leaders of the General Assembly are, rightfully, focused now on finding ways to restructure or reinvent government to save money. And the Governor’s GO-TIME office has already found substantial savings through initiatives of this kind. While necessary and admirable, no one should imagine, however, that innovations in government and finding new efficiencies can close the large budget deficits we see before us.

No one wants to raise taxes on working people and the middle class to close the budget deficit. So, ultimately, the General Assembly is going to have to fix Pennsylvania’s upside-down tax system, which taxes those with lower and middle incomes at much higher rates than those with higher incomes, in order to provide the revenues the state requires to meet the needs of all Pennsylvanians.