Budget Lessons for Pennsylvania

Member Group : Commonwealth Foundation

When it comes to being in poor fiscal health, Pennsylvania—which faces a revenue shortfall forecasted to reach $1-2 billion—is not alone.

Thirteen states are staring at budget shortfalls north of $1 billion. Moody’s recently reported that 30 states are in recession, with 19 more at risk.

How these states got into a precarious fiscal position is obvious: they’re addicted to spending.

Now, many of the spendthrifts are seeking a federal bailout. In September, California Gov. Arnold Schwarzenegger—who increased spending by over 40 percent after promising to "blow up the boxes" of state government—hinted at needing $7 billion in federal assistance to keep the Golden State afloat.

Since then, we’ve seen a steady parade of state and local leaders coming hat-in-hand to Capitol Hill seeking massive handouts. South Carolina Gov. Mark Sanford, a fiscal conservative, has been the voice of sanity, warning that "[t]his $150 billion may in fact further infect our economy with unnecessary government influence and unintended fiscal consequences."

States are looking to the feds for help because the political will to raise taxes is non-existent. And the tight credit market means states are going to have a hard time borrowing, prompting some analysts to believe we’ve seen the end of an era of relatively cheap money and easy borrowing for governments.

So how’s a state to climb out of the fiscal hole into which it’s dug itself? Simple: Spend within your means, and partner with the private sector to deliver more services.

Texas is currently the envy of the nation with an $11 billion budget surplus. How did the Lone Star State do it? For starters, the Texas Constitution gives a popularly elected state comptroller the duty to reject spending bills the state can’t afford. The office’s current occupant, Susan Combs, launched a website (Where the Money Goes) to show taxpayers how their money is being spent. Having an independent watchdog enforce prudent fiscal forecasting and spending helps to avoid the paradigm in which so many states—including Pennsylvania, which has no equivalent of a comptroller—are engulfed: governors and legislators assume the rosiest of revenue projections to justify new spending, and when the monetary Utopia doesn’t materialize, they declare a budget "crisis."

Texas also engages in performance-based budgeting—tying a program’s funding to how well it meets its goals. A Sunset Advisory Commission conducts mandatory periodic reviews of all state agencies to find duplicative and unnecessary programs to be cut. Since the Sunset Commissions’ creation in 1977, over 47 agencies have been eliminated, and another 11 have been consolidated.

Similarly, Washington and South Carolina rank state programs according to priority and effectiveness. They fund programs from the top of the list downward until revenue is gone, eliminating poor-performing, unnecessary, and wasteful ones.

Policymakers also seem to be increasingly cognizant that privatization and competitive service delivery are tools for doing more with less money. Competitive sourcing allows the private sector to compete for jobs and contracts controlled by the government. Federal employees actually won 83 percent of the job competitions from 2003-2007. But the competition still saves a lot of money—taxpayers saved $25,000 for every job that was put up for competition because even when the government kept the job it significantly improved efficiency and reduced costs.

Privatization is also coming back into vogue these days, partially buoyed by the successful track record of former Florida Gov. Jeb Bush. The Sunshine State engaged in over 138 privatization initiatives, saving taxpayers over $550 million, during Bush’s tenure (1999-2007). When many other states were raising taxes, Bush’s privatization initiatives helped Florida to shed almost $20 billion in taxes and over 3,700 bureaucrats.

There are proven ways for Pennsylvania to dig out of its fiscal mess. Putting taxpayers on the hook for a federal handout won’t solve a problem rooted in state government’s addiction to spending. As the Keystone State begins to reckon with the magnitude of its fiscal crunch, privatization and prudent fiscal stewardship will be the keys to "right-sizing" government and avoiding binge spending when economic conditions improve.

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Leonard Gilroy is the director of government reform at The Reason Foundation (www.Reason.org).

Permission to reprint is hereby granted provided the author and affiliation are cited.

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