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Commonwealth Foundation


Current State Spending = Future Tax Increase

by News Release
 

NEWS RELEASE from the Commonwealth Foundation
09.18.08

Current State Spending = Future Tax Increase?
Budget revenue shortfalls on track to produce multi-billion dollar tax increase in 2009

HARRISBURG, PA – The Commonwealth Foundation joined State Rep. Sam Rohrer, State Senator John Eichelberger, and other members of the General Assembly to call on Governor Rendell and the General Assembly to take immediate action to prevent a potential multi-billion dollar tax increase in 2009.

"Our early warnings and predictions that the recently passed budget would put
Pennsylvania on a path toward a tax massive increase in 2009 are, unfortunately, coming true," said Matthew J. Brouillette, president of the Commonwealth Foundation.

"Gov. Rendell's recent call for hiring freezes and limiting out-of-state travel for government employees is a good start, but will not be enough to prevent the coming budget deficit, particularly if he gets any of his new spending plans in the next couple of weeks" said Brouillette. "If the governor and General Assembly don't want to raise taxes on working Pennsylvanians next year, then they must take action now to significantly reduce state government spending today. Waiting until next February will be too late."

In response to the August revenue shortfall of $117 million (7%), Gov. Rendell
called for $200 million in spending reductions. "We commend Gov. Rendell for
recognizing the need to rein in spending, but if history is our guide, he needs to cut billions of dollars from his spending plan," Brouillette said.

August revenues in the two most recent years in which taxes were increased on
Pennsylvanians (2002 and 2003) were less than 2% off projections. Brouillette noted that "the 7% shortfall in August 2008 does not bode well for the rest of year, particularly given that September has been historically one of the worst months."

In 2002 and 2003, the September shortfalls were nearly 6%–more than $100 million each year.

The potential of a massive budget hole was recognized even before the FY 08-09
budget passed on the 4th of July this year. Senate Republican Appropriations
Committee Chairman Gib Armstrong told the Associated Press that he expected "a
deficit at the end of the fiscal year of between $800 million and $1.2 billion." A longtime senior Democratic Appropriations Committee staffer also told the AP that "he and others expect a $1 billion deficit that could require a tax increase." He added, "If this economy continues its downturn, we could easily get up that high. Two billion is not out of the question."

In order to thwart the need for a massive tax increase in 2009, the Commonwealth Foundation urged Gov. Rendell and the General Assembly to first, "do no harm" by shelving plans for new spending, including the PA ABC health care plan that would increase spending by over $290 million in FY 08-09 alone. Then, the Foundation said, the General Assembly should begin cutting out the "walking-around-money" and corporate welfare programs that have failed to improve Pennsylvania's economy. "It is fiscally prudent to reduce spending now in light of the current economic downturn. Gov. Rendell and the General Assembly can always restore funding increases if revenues pick up, but all current indicators suggest policymakers must cut government spending today."

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The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent,
non-profit public policy research and educational institute based in Harrisburg, PA.

CONTACT: Matthew J. Brouillette or Nathan A. Benefield at 717.671.1901

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