Game On!

Member Group : Lincoln Institute

It will never rival the Super Bowl, the World Series or even March Madness in popularity, but Pennsylvania’s budget battle is underway and – unlike those sporting events – it has a real world impact on every taxpayer.

In February Governor Tom Wolf released his budget proposal. Predictably, it called for increased spending and higher taxes – although far less of both than in past years. This week the House Appropriations Committee, where the budgeting process actually begins, released its own budget that holds the line on taxes while actually slightly reducing overall general fund spending in the coming year.

Harrisburg politicians are operating on the theory that the state has a $1.4 billion "structural budget deficit," which is actually the difference between what we have available to spend and what they want to spend. Further, revenue from the current fiscal year is expected to fall about $700 million short of projections. Even using Common Core math it is easy to see the new budget begins with a significant short-fall.

Early in the process Governor Wolf took any broad-based tax hikes, meaning the Personal Income Tax or Sales Tax, off the table. He did, as usual, propose implementing a severance tax on Marcellus Shale drillers. Aside from that, he advocates various targeted tax hikes – a strategy that was used last year and failed, resulting in overly optimistic revenue projections.

The House Appropriations Committee, under its new chairman State Representative Stan Saylor (R-York) countered with a Republican plan dubbed ReinventPA. In it the GOP declares the days of "more taxes, more debt and more spending are behind us." It then goes on to outline a spending plan that indeed includes no new taxes.
Like the governor, the Republican budget increases spending on K-12 education. But unlike Wolf’s proposal, it funds that increase in basic education spending by making cuts to administrative spending across all three branches of state government.

Saylor’s plan utilizes a mix of further reforms to the state’s antiquated liquor system, expansion and reforms of gambling, tax credit reductions, and special fund transfers in addition to the administrative cuts to bring the budget into balance.

It is unrealistic to suggest any significant progress can be made on the biggest cost driver in state government – the growing unfunded liability in the state’s public employee pension funds – in time to impact the 2017-2018 budget which must be adopted by the end of June. But, the ReinventPA plan does begin the process of moving forward on pension reform as well as addressing growing debt service obligations, spending on corrections and entitlements.

The bottom line: Governor Wolf’s budget calls for an overall spending increase of about $500 million, the GOP plan would actually reduce general fund spending by $245 million. Historically that puts the two sides much closer together than they were at this stage during the first two years of the Wolf Administration.

The governor’s less ambitious spending proposals are a bow to political reality. Republicans achieved a veto-proof majority in the state Senate in last November’s elections and the GOP holds a large majority in the state House. Unlike his Democratic predecessor, Governor Ed Rendell, Wolf cannot count on moderate Republican votes to enact his budget priorities because not only has the legislature become more Republican, it has become substantially more conservative.

With the two sides so close together optimism is rising that a budget deal might actually be struck somewhere near close to the June 30st constitutional deadline. The GOP has agreed to some of the governor’s spending priorities, particularly on education; but will fight hard against any tax hikes. There are still areas of disagreement. However, 2018 is a gubernatorial election year. All members of the state House and half of the state Senate will also stand for election. None of the above wants a repeat of the lengthy budget battle that two years ago inflicted financial pain on nonprofits, school districts and others across Penn’s Woods.

That is why Governor Wolf has abandoned the demands for dramatic tax and spending increases that were the hallmark of his first two budget proposals. Thus the budget differences between the two sides are far less this year than in the past. But the big fiscal challenges facing the commonwealth remain leaving much to be done even after the new budget is adopted.

(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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