For the last few weeks, we have been told a Republican plan to balance the budget was coming, one that would, almost miraculously, come up with more than $2 billion without raising taxes or cutting any public programs simply by transferring “surplus funds” that were “not doing anything” into the General Fund.
We knew and said that this plan was, at best, a one year fix that would not do anything to reduce the long term structural deficit in the state budget. And in the same piece we strongly suspected that it was based on some false assumptions about why there are numerous state special funds and why, at certain points of the year, they run a surplus.
But we were not prepared for what we heard today when the program was revealed and the whole effort was shown to be a sham of Wizard of Oz proportions.
This plan is, as we assumed, a one-year fix. But it is a one-year fix that is accomplished by a huge reduction in the state budget, partly in the General Fund, but mostly in the special funds. Many, if not most, of the “fund transfers” the Republicans propose are larger than both beginning or ending balances of the special funds in question, which means that their plan cuts spending by the special funds that the General Assembly has previously approved.
The House Republican plan thus offers us deep cuts to many important government programs pretending to be a series of funds transfers. Among them are cuts to public transportation, aid to small businesses, environmental programs including recycling and hazardous waste clean-up, as well as funds for parks, recreation centers, and historic sites.
Rather than openly debate these programs, this group of Republican House members have called for cutting them without acknowledging that this is, in fact, their plan.
We will have more details about the specific problems in the Republican proposal later. Here we just want to point to some examples of the disparities between what the Republicans claim about their plan and the truth of the matter:
- The proposal raids $30 million from the PA Infrastructure Bank. This will lead to a reduction in loans for qualified transportation projects of at least $17.5 million.
- The proposal raids $25 million from the Small Business First Fund, which provides loans to small businesses to help them comply with environmental regulations or adjust to defense cutback. The balance plus new revenues from principal and interest repayments only totals $19 million. This transfer will basically end this state program.
- The proposal raids $75 million from the Recycling Fund, which funds “recycling and planning grants, market and waste minimization studies, and public information and education activities” and also finances the cleanup of illegally deposited waste on state forest. This will lead to at least a $25 million reduction in state spending for these purposes.
- The proposal raids $357 million from the Public Transportation Trust Fund, which receives revenue from Turnpike tolls and other sources and provides dedicated operating and capital funding for public transit. This will necessarily require about a $100 million reduction in expenditures from the Fund.
- The proposal raids $50 million from the Hazardous Site Clean Up Fund, which finances cleanup and restoration of abandoned hazardous waste sides. This will require a reduction of $11 million in spending this year.
- The proposal raids $100 million from Keystone Recreation Park and Conservation Fund that comes from dedicated bonds as well as tax revenues, which funds acquisitions, improvements and expansions of commonwealth and community parks, recreation facilities, historic sites, zoos, public libraries, nature preserves and wildlife habitats. This will eliminate the $95 million in spending from this fund this year.
- The proposal raids $25 million from the Banking Fund, which receives funds from fees, assessments, charges and penalties collected or recovered from persons, firms, corporations or associations under the supervision of the Department of Banking Securities. While here the Republicans may have found a real surplus, there is a reason for it: to have funds available in case a of seizure or liquidation of a financial institution, association or credit union. It is good government to maintain this surplus.
- The proposal raids $120 million from the Multimodal Transportation Fund, which receives revenue from Turnpike tolls, motor vehicle fees, and the Oil Company Franchise Tax in order to fund passenger rail, rail freight, ports and waterways, aviation, bicycle and pedestrian facilities, roads and bridge. This would eliminate $90 million in state spending.
There are other examples of budget cuts masquerading as the transfer of surplus funds. And there are legal and constitutional problems in many of the proposals that raid funds derived from public debt approved by the voters for one particular purpose.
And, on top of the budget cuts portrayed as “funds transfers,” the Republican proposal includes two other hidden budget cuts. The first is the $189 million the Governor has put in reserve until the budget is funded. This is spending that was part of the budget many of these Republicans voted for in July. They thus propose converting a temporary action by the Governor into a permanent budget cut. The second is the roughly doubling of savings expected from lapsed funds. In many cases, funds that have not been spent in a budget year are spent in the next year for purposes designated by the General Assembly.
All told, the Republican plan to solve our budget problems without any pain turns out to be a total mirage, conjured up by some Wizards of Budgetary Legerdemain in the House Republican Caucus. And even if every fund transfer proposed by the Republican back-benchers today were Constitutional and legal, and even if they had no impact on the commitments made by the General Assembly to provide funding for public purposes, this one-time transfer will provide almost no recurring revenues to support the state’s on-going commitments. It would leave us facing a deep deficit next year — one that would grow deeper every subsequent year.
It is time for sensible members of the caucus to put this nonsense aside and to recognize that there is no painless solution to the Pennsylvania budget deficit and join Democrats and Senate Republicans in enacting new, recurring revenues to balance the budget.