On Monday, December 7th, the Pennsylvania Senate passed two significant pieces of legislation. The first was a budget that grew spending at 6 percent, well over the rate of inflation plus population growth. The fact that there is no way to pay for this spending increase without a tax hike is equally concerning. This budget made no attempt to "trim the fat". Instead, the budget increased expenditures on some very questionable line items.
First and foremost, the Senate budget increased spending on "Community and Economic Development" by 51 percent or $103 million. That section of the budget is a hotbed of corporate welfare. The Senate budget also resurrects Walking around Money (WAMs) according to the Commonwealth Foundation. WAMs are leadership directed slush funds. In the past, WAMs acted as a gateway drug for public corruption. Brad Bumstead highlights the corrupting influence of these slush funds in his book, Keystone Corruption.
On the bright side, the Senate also passed substantial pension reforms. Unfortunately, the pension reform bill contained some poorly thought out provisions. First, the legislature will decrease mandated payments to the pension fund this year. This change will increase the unfunded liability by $500 million. The legislation also suspends the requirement for the bill to require an actuarial note. This means that the legislature may not have an accurate picture of the costs of the pension reform proposal. Finally, the legislation included a provision that would allow members of the General Assembly to request to be moved back into the defined benefits program after reelection. There is some legal rationale for including this provision, and we’ll certainly let folks know if any members exercise this option.
The House passed an alternative budget proposal on Tuesday that more closely aligns spending with revenues. However, because the spending does not meet the Governor’s demands regarding education and welfare spending, it is unlikely that pension reform would move forward. While we think that the education and welfare spending increases are excessive, it is possible to come very close to the Governor’s numbers by cutting spending elsewhere in the budget:
Eliminate the $103 million increase to Community and Economic Development.
Transfer the $250 million from the Race Horse Development Fund to more urgent spending needs.
Save $750 million by winding down active pension fund management and switch to index funds. (These savings would likely take more than one year to materialize depending on how quickly the investments can be liquidated).
Eliminate the $2.8 million Milk Marketing Fund; the $8.7 million spent on marketing Pennsylvania to businesses; the $6.9 million spent marketing the state to foreign countries; the $88 million spent by the Commonwealth Financing Authority; $34 million spent on Pennsylvania First; $1.1 million for public television and $8.7 million for tourism marketing.
If you’re keeping score, the items listed above would save taxpayers roughly $1 billion.
It is clearly possible to find savings within the budget if the legislature really wants to avoid raising taxes. The problem is that most elected officials hate having to prioritize spending like a family would do when they have to decide between wants and needs.