Excessive Spending Increase Clouds Rainy Day Fund Contribution
June 28, 2019, Harrisburg, Pa.—Today, lawmakers put the finishing touches on a state budget that spares Pennsylvanians from tax hikes, grows the state’s beleaguered Rainy Day Fund, and boosts school choice—but also overspends and leaves crucial reforms undone.
“No new taxes and expanded education opportunities are reasons for Pennsylvanians to welcome this year’s state budget,” commented Nathan Benefield, vice president & COO for the Commonwealth Foundation. “Gov. Wolf and lawmakers entered budget negotiations with wages rising, record low unemployment, and state revenues surpassing projections—party due to the benefits of federal tax reform. This helped make a significant Rainy Day Fund contribution possible, but also allowed critical decisions on reforming taxes and controlling spending to be put off.”
“A major disappointment is this year’s excessive spending increase, on top of last year’s overspending, which demonstrates the need for commonsense spending limits and fixing the broken budget process.
“Lawmakers avoided some harmful policy proposals, including Gov. Wolf’s ‘Restore PA’ tax-and-borrow scheme, a job-killing minimum wage hike, and a crippling cap and trade deal. But they also left undone several positive reforms. In the coming months, we look forward to working with lawmakers to advance policies—like improving our criminal justice system, enacting spending limits, and making our tax code competitive—that will allow all Pennsylvanians to flourish.”
BRIEF BUDGET ANALYSIS
School Choice Gets a Boost:
Last week, Governor Wolf vetoed a bill, HB 800, that would have boosted by $100 million the cap on tax credits for our state’s primary tax credit scholarship program—the Educational Improvement Tax Credit—which provides tens of thousands of children with private school scholarships.
Despite that veto, lawmakers included in the budget-related education code a $30 million increase in tax credit scholarship caps. This includes a $25 million increase in the EITC program—equaling the largest-ever increase—and a $5 million increase for the Opportunity Scholarship Tax Credit—the first increase in the program’s history. These increases will allow thousands more scholarships to be awarded next year.
Total Spending is Way Up:
General Fund spending for next year is $34 billion, up from $32.7 billion enacted last year. However, when all additional cost shifts, revenue transfers, and overspending from last year is accounted for, we are looking at an increase of 4.7% over the enacted budget last year.
Under the Taxpayer Protection Act (TPA), state spending increases would be capped (subject to legislative supermajority) to a 2.12 percent increase this year, based on the average inflation and population growth.
The Shadow Budget Strikes Again:
The budget includes accounting maneuvers to make the final General Fund spending total appear less than it actually is. In fact, $220 million in General Fund revenue is being shifted to the “Shadow Budget,” which contains billions of dollars in off-book spending with little oversight or accountability.
Another $49 million in spending for the Department of Conservation and Natural Resources and Department of Environmental Protection programs are being shifted to special funds in the shadow budget.
Greater Budget Transparency:
Included in the administrative code is an important budget process reform, requiring cost overruns (“supplemental appropriations”) to be identified earlier and justified. Governor Wolf’s $673.9 million in overspending last year is a perfect illustration of why.
Public School Funding Hits a New Record:
The budget also includes a $423 million increase in public school funding, including $160 million for K-12 education, $50 million for special education, and $25 million for early childhood programs.
Commonwealth Foundation experts are available for comment. Please contact John Bouder at 570-490-1042 or [email protected] to schedule an interview.
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