State Spending Limits Policy Points

Member Group : Commonwealth Foundation

State Spending Limits for Pennsylvania

State Spending is Growing Faster than Taxpayers’ Ability to Pay

• Total Pennsylvania state government spending has consistently outpaced the growth of personal income.

o From 1970 to 2011, the state operating budget as a percent of Pennsylvanians’ personal income grew from 8.8% to 12.0%.

o Per family of four, total state spending grew by more than $12,000 in inflation-adjusted dollars since 1970.

• State and local taxes take more than 10% of Pennsylvanians’ income—$4,400 per person. Pennsylvania has the 10th highest state and local tax burden, up from 24th in 1990.

Government Growth has Hampered Pennsylvania’s Economy

• Despite the dramatic growth in state government spending, Pennsylvania ranks among the worst states in the nation in key economic performance indicators.

o From 1991-2011, Pennsylvania ranks 41st in job growth, 46th in population growth, and 48th in personal income growth.

• From 2000 to 2010, Pennsylvania’s private sector lost 103,700 jobs, while government employment grew by 33,400.

o In 2011, government jobs declined by 17,100, but private sector employment grew by 80,500.

o Over the last 20 years, the percentage growth of state government spending has a negative relationship with total job growth in Pennsylvania.
• According to IRS data, Pennsylvania lost a net 77,184 taxpayers to other states from 2000 to 2010.

o This out-migration resulted in a net loss of $4.3 billion in household income.

The Solution: The Taxpayer Protection Act

The Taxpayer Protection Act would:

Limit future growth in state and local government spending.

• Government spending increases would be limited to the rate of inflation plus population growth.

Require the prioritization of spending by government.

• Funding for core government functions will be more than sufficient.
Ensure a prudent Rainy Day Fund.

• 25% of excess taxes collected would be placed into a Rainy Day Fund that can be used to balance the budget in times of recession.
Provide tax relief for families.

• 75% of all excess state tax revenues will be used to reduce Personal Income Tax rates. After the Rainy Day Fund reaches 5% of spending, all excess revenues will be used to reduce tax rates.

The Taxpayer Protection Act Prepares Pennsylvania for Recessions
• Prior to 2011-12, Pennsylvania’s total operating budget had increased for at least 40 consecutive years.

o Legislators spent every dollar available during economic growth, then raised taxes in recessions.

• The Taxpayer Protection Act (TPA) would force lawmakers to limit government spending during boom years, put money aside in a Rainy Day Fund, and prepare for periods of economic stagnation.

Spending Limits Should Encompass all Government Spending

• Often state budget discussions focus only on the General Fund, which represents less than half of all state spending. Pennsylvania’s total state operating budget is more than $63 billion.

o Since 1970, General Fund spending grew 83% in inflation-adjusted dollars. In contrast, spending from "Other State Funds" ballooned by 509%.

• Under the TPA index, total state spending could have increased by $16 billion since 2000. In actuality, state spending increased by $25 billion.

The TPA Allows for Reasonable Increases in Government Services

• A spending limit only slows the growth in spending, it does not mandate any cuts.

o Under the TPA, spending from state funds in FY 2012-13 could increase by $963 million.

o Government spending should be limited to core programs and services. Increases should be tied to the increase in the prices (inflation) and the number of people served (population growth).

• Spending limits will force policymakers to prioritize, rather than spend money without regard to taxpayers’ ability to pay for it.

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