As Pennsylvania’s budget crisis enters its third month there is a growing sentiment that legislators and the governor should strike whatever agreement they can just to bring the saga to an end. That would be a mistake with profound long-term consequences for the fiscal health of the commonwealth.
This budget battle is not just about how much will be spent in the current fiscal year; it is also about setting a course for the future. And while many are quick to condemn &quot;ideologues&quot; on both sides, the fact is the guiding principle of how state budgeting will be accomplished is a foundational debate that is of profound significance.
The reason it has taken so long to come to a consensus is because state government is closely divided between the two political parties. With Republicans finally acting like Republicans, two very different philosophies of budgeting have emerged. Add in declining revenue resulting from the national recession, and all the components of stalemate are in place.
Particulars aside, the basic point of disagreement is this: budget by adding up what we would like to spend and then raise revenue (taxes) to fund the total; or determine the amount of revenue (taxes) available and then trim spending demands to that level. The first approach is the one taken by state government in recent years and is in fact the more typical method of government budgeting. Unlike families and businesses, government can command more revenue at will simply by taxing more. But this year, most Republicans and some Democrats are demanding the second approach, correctly arguing that a recession is not the time to be adding to the tax burden of working families and small businesses.
Left to its own devices, the General Assembly likely would have come to an agreement months ago. But, budgeting also involves the governor and Ed Rendell is willing to tax anything and everything to fund his spending desires. That is why he has proposed a wide array of tax increases ranging from the Personal Income Tax (PIT), to sales taxes, to implementing new taxes on the Marcellus shale reserve. Even Democrats would not go along with a PIT increase, and the governor has finally realized the folly of taxing the nascent development of Marcellus shale resources.
As the process has unfolded Republicans have agreed to marginally more spending and Democrats have agreed to a few more cuts. The two sides are now tantalizingly close to agreement. But, the longer the crisis goes on the more vocal those not receiving their state funding become. And the news media, largely biased toward higher spending anyhow, is beating the &quot;Just Do It&quot; drums.
That would be folly. For not only is the current fiscal year at issue, but this budget will also set the stage for the next few years. It is clear the state cannot continue spending at the current rate without raising some tax or combination of taxes. To continue unfunded spending would guarantee a bigger budget problem next year. Since 2010 is both a gubernatorial and legislative election year nobody wants another budget crisis. Worse, failure to come to grips with our financial situation now will result in the next governor coming into office with an immediate fiscal crisis on his hands.
Calling for a quick compromise, any compromise, and passage of a budget that does not address the underlying issue of how we approach state spending will do nothing other than to lay a time bomb which will explode in the very near future. That creates uncertainty for those depending upon state funding; uncertainty for taxpayers; and uncertainty for business.
As for the later, nothing (other than taxes) is more harmful to business development than uncertainty. Pennsylvania’s business climate already rates in numerous surveys as one of the worst in the nation. State government has within its grasp the opportunity to put Penn’s woods on a path of fiscal responsibility and stability that will create a climate for an economic resurgence.
Although patience with the process has worn thin, there is too much at stake to &quot;Just do It&quot; for the sake of getting it done.
(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])
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