The Land of Missed Opportunities
As Governor Shapiro was rolling-out new state welcome signs and license plates featuring the slogan “let freedom ring,” the better choice to summarize recent budget and policy outcomes in Harrisburg would be: “land of missed opportunities.”
The $47.6 billion spending plan is a 6 percent increase above last year. Though the total spend number is less than Governor Shapiro’s proposed $48.3 billion budget, the new, additional spending in this plan requires supplementing $3 billion from reserves to bring it into balance. According to a recent analysis by the Commonwealth Foundation, this means FY 2024-25 budget creates a $3.6 billion structural deficit, and without significant economic growth (which Pennsylvania hasn’t seen in far too long), taxpayers will feel the burden from these spending decisions in just a year or two.
“Fixing the structural deficit should be the fundamental consideration in drafting the General Fund budget,” said PMA President & CEO David N. Taylor. “Mandatory spending is increasing faster than revenue from economic growth, driven by Pennsylvania’s demographic crisis. The only new spending that can be justified would be for policy changes to close that gap with more and faster economic growth.”
Some reforms were included in the budget that have long been advocated for by members of the business community. Perhaps most significant are provisions to better expedite permits; allowing for third-party review of select air, water, and land use permits, a permit tracking system, and solidifying turn-around times on a number of applications. Another positive is the recognition of the important role Career and Technical Centers (CTCs) play in workforce development training. In addition to $30 million in increased funding, provisions in the budget will make it easier for those qualified to become instructors and focusing on scholarships for in-demand career fields.
Had reforms such as these been coupled with meaningful business tax reform, it would have been a recipe for expedited growth. Instead, the tax reform that was ultimately passed will only apply to future business activities without recognizing Pennsylvania businesses that have operated, employed, and paid taxes here for the past two decades. Currently, Pennsylvania remains an outlier when it comes to Net Operating Loss (NOL) treatment; only allowing for 40 percent of the losses over the past twenty years to be carried forward. It’s only Pennsylvania and New Hampshire that cap below the federal standard of 80 percent with many states at a full 100 percent. Language in the budget will slowly increase that threshold to the federal standard of 80 percent, but only for business activities that occur starting in 2025.
“While state government may have solved the glaring deficiency of NOL treatment for the future, incumbent employers who have been operating in the commonwealth for decades received no help at all,” Taylor said. “In light of the economic damage caused by Tom Wolf’s pandemic lockdown, state leaders have a responsibility to fix this problem for those employers who have been sustaining jobs and paying taxes all along. Everyone in Harrisburg needs to understand that the work to fix NOL is not done.”
The budget also includes a myriad of other government programs such as: $500 million to establish the PA Sites program, $25 million Solar for Schools program, and additional $80.5 million to public transit agencies, and much, much more.
But it’s the “much, much more” that’s the problem. When government spending grows faster than the private sector, it stifles private sector growth because it creates uncertainty when it comes to tax rates to make up for that deficit spending. That time is coming quickly as the Biden-bucks from covid relief will run dry.
Headed into future budget negotiations with all these new programs focused on “growth” in place, it’s imperative that Pennsylvania’s policymakers ensure government spending does not grow at a faster rate than the private sector can earn it.
