Fiscal Crisis Looms Over Penn’s Woods: Years of state over-spending contribute to mounting budget deficit

Member Group : Lincoln Institute

State Representative Sam Rohrer was the canary in the mineshaft. Weeks ago, as the economic storm clouds gathered, Rohrer said the state was headed toward a massive budget deficit and he called upon the Rendell Administration to re-open the budget and make the cuts needed to avert massive tax increases next year.

Rendell responded by cutting $200 million dollars and imposing a hiring freeze on state agencies, a move even spendthrift state Senator Vincent Fumo (D-Philadelphia) now calls "chump change." At the time I wrote in my daily blog: "Rendell is more making a PR ploy than taking any action that will truly impact the state’s fiscal condition."

Here we are several weeks later and the $200 million in cuts is clearly not going to make a dent into what is shaping up as a major state financial crisis. September revenue collections alone were $160 million below projection. Fumo is predicting the commonwealth could face as much as a $3 billion deficit this fiscal year, which runs until June 30, 2009.

How could we find ourselves in such desperate shape only three months into the new budget year? The economic factors at play now were apparent in July when the legislature (belatedly) passed the new budget. And while Republicans again forestalled Rendell Administration efforts to raise taxes, both parties continued their practice of hiking spending – even in the face of mounting worries over the economy.

The developing fiscal mess can be laid directly at the feet of the governor, and legislative leaders of both parties. They are the only ones who have any actual impact on the final form of the state budget, with all other legislators given only the opportunity to vote the final package up or down.
Setting the blame game aside, the time has come to take stock of where the state stands financially and make budget adjustments while we still have enough time to mitigate the impact on taxpayers. Representative Rohrer again this week called on the governor and the General Assembly to re-open the 2008-2009 budget and make the cuts needed to bring spending in line with the new revenue forecasts.

So far that has not happened. And, with the legislature leaving town this week for its election recess, look for little to happen in the coming weeks. That puts the ball in the Rendell Administration’s court, which is not good news for taxpayers in that the governor’s approach all along has been to call for tax hikes. He may now get his wish for higher taxes by simply standing by and allowing a budgetary train wreck to occur.

That would be an incredibly irresponsible course of action. Rohrer is trying to keep pressure on the governor to act. In a statement released earlier this week Rohrer said: "Now is definitely the time for drastic spending reductions, rather than more lame duck excuses which will only lead to further inaction. It is crucial to re-open the budget and allow for legislative and public input to create a fiscally responsible, balanced zero-growth budget."

In fact, the "zero-growth budget" concept could be a simple way to resolve the looming crisis. Rohrer and other conservatives in the House advocated such an approach last June as the current budget was being crafted. A zero-growth budget simply means all departmental expenses are held to the same levels as were funded in the previous year. Increased contractual obligations, such as higher pay required by union contracts, would be offset by cutting discretional spending in other categories.

The political pressures on the legislature to spend more were such that the zero-growth idea went nowhere in June. Now, however, the governor and legislature would be justified in reducing budgeted spending back to last year’s levels. Even that, however, may not be enough stem the tsunami of red ink that is building.

Look also for Rendell and lawmakers to try and tap the state’s Rainy Day fund as part of their solution to the budget crisis. Rohrer, however, points out that the Rainy Day fund is set aside for "unanticipated emergencies," not for balancing the budget. As such, he contends it would be illegal to tap into the fund for such a purpose. Besides, it is prudent to believe that the state’s financial difficulties will not end with the current fiscal year, and draining the Rainy Day fund will only put off the pain until next year.

For years state government has over-spent and over-borrowed, but was able to mask its spending addiction with increased revenue generated by a healthy economy. With the nation now facing what is arguably the worst economic crisis since the Great Depression state government is either going to have to dramatically change its ways, or we the people of Penn’s woods will be socked with tax increases also of historic proportions.

(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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