Breakthrough Would Balance Budget without Tax Hikes or Borrowing
September 5, 2017, Harrisburg, Pa.ï¿½"In a potential breakthrough in the stateâ€™s two-month budget stalemate, House Republicans today unveiled a plan to use state government fund surpluses to help balance the budget. The funds in question are part of the rarely scrutinized shadow budget, which accounts for 60 percent of state governmentâ€™s cost.
These shadow budget funds held $9.6 billion in surplus as of September 5. The state ended last fiscal year with a $1.5 billion deficit, or just 16 percent of fund surpluses. The House proposal would make one-time transfers from the balances of 41 of these funds to pay last yearâ€™s debt. In addition, the plan covers this fiscal yearâ€™s budget imbalance through a series of one-time and recurring changes to the fiscal, tax, and administrative codes.
â€œIt’s appropriate to use money taxpayers have already paid to fund the bills owed because of last year’s overspending,â€ commented Nathan Benefield, vice president and COO for the Commonwealth Foundation. â€œFor years, the stateâ€™s shadow budget has built up excess balances with little scrutiny or oversight. We applaud House lawmakers for reprioritizing these tax dollars.
â€œThis is a major shift from the Senate-passed revenue plan which relies on borrowing and taxing Pennsylvaniansâ€™ heating, electric, and phone bills to help to pay for last yearâ€™s budget deficit and this yearâ€™s spending increases. The House plan will spare families and job creators from major tax hikes and avoid costly borrowing schemes that would harm economic growth."
(Chart: Shadow Budget Surpluses vs. 2016-17 Deficit)
Five Facts about Shadow Budget Fund Surpluses
1. Pennsylvaniaâ€™s shadow budget contains more than 150 special funds and accounts for about 60 percent of state government’s cost.
These state funds had a surplus of about $9.6 billion in their checking and savings accounts, as of September 5.
2. Drawing down on the stateâ€™s fund balances is an appropriate solution to the temporary problem of $1.5 billion in unpaid bills from last fiscal year.
This one-time transfer represents just 16 percent of the $9.6 billion balance sitting in shadow budget funds.
3. Utilizing excessive fund balances is not a form of borrowing.
Transferring a portion of surplus funds from the shadow budget would not require interest payments, and lawmakers do not need to replenish these fund balances.
4. Tax hikes are not a solution.
Four tax hikes in eight years failed to solve the state’s structural budget challenges. Credit agency warnings have expressed concern over Pennsylvaniaâ€™s slow economic growth, a problem that higher taxes would worsen.
5. Many of the special funds inside the shadow budget are paid for with tax dollars, not user fees or premium payments.
For example, the Public Transportation Trust Fund is funded by turnpike tolls (charged to drivers who choose not to use mass transit) and sales taxes. Likewise, the Race Horse Development Fund is financed predominantly by slot machine gamblers. And the Keystone Park, Recreation and Conservation Fund is financed by the Realty Transfer Tax.
Benefield warned that tapping fund reserves does not excuse overspending:
Lawmakers must control state governmentâ€™s spending addiction and ensure next yearâ€™s budget lives within Pennsylvanians’ means. Meaningful, long-term reforms, like fully privatizing the stateâ€™s liquor monopoly and helping able-bodied welfare recipients transition from dependence to self-sufficiency through work requirements, should also be included in the final revenue plan.
Today, lawmakers face a choice between raising taxes on working familiesï¿½"for the fifth time in nine yearsï¿½"or reprioritizing government surpluses and enacting real reforms. The choice is simple.
In addition, the House passed legislation to allow private stores to sell wine and liquor (HB 991), as well as a gambling expansion. These options would generate even more recurring revenue without demanding more from taxpayers.
Nathan Benefield and other Commonwealth Foundation experts are available for comment. Please contact Gina Diorio at 862-703-6670 or [email protected] to schedule an interview.
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