Will GOP Again Cave to Democrat Spending Demands?

Member Group : Lincoln Institute

The recent Primary election produced an historic, perhaps unprecedented, simultaneous defeat of the powerful chairmen of both the Senate and House appropriations committees. There were unique dynamics at play in each race, but the common thread was voters viewed the incumbents as having not been sufficiently conservative in fighting for more fiscally responsible state budgets.

It is again budget crunch time under the capitol dome in Harrisburg and the question of the day is will a minority of Republicans side with Democrats to again pass a bloated state budget or will the GOP majority stick together and heed the message sent by voters.

History suggests they will not heed the message.

Going back at least to the administration of Governor Ed Rendell enough Republicans have routinely sided with Democrats in ratcheting up state spending. To be fair it should be noted in recent years the GOP has blunted the sharper edges of Governor Tom Wolf’s budget proposals. But, spending has still escalated at an unsustainable rate.

Fiscal conservatives have pushed for enactment of the Taxpayer Protection Act and a related constitutional amendment that would constrain spending increases.  TPA as it is known would limit annual spending increases to the rate of inflation plus population growth.

Pennsylvania’s population growth is stagnant, but with inflation surging at over eight percent that would allow for a hefty spending increase. Speaking last week on Lincoln Radio Journal State Representative Frank Ryan (R-Lebanon) made the point that TPA is a limit – not a goal – and that spending increases should be held to a point well under that limit.

The chances for overspending are especially high this year.  State coffers are flush with federal cash ostensibly intended to blunt the impact of the COVID-19 pandemic and with state tax revenue receipts running billions of dollars over projections.  Governor Tom Wolf and legislative Democrats have advanced a virtual smorgasbord of options for spending all of that cash.

Looking beyond this year, however, the fiscal picture is not as bright.  The state’s structural budget deficit will eventually return the commonwealth to a deficit position resulting in the need for future tax increases. There is also a need to address the severe underfunding of the state’s public employee pension systems which are becoming even more stressed as the equity markets are in the midst of a severe downturn.

Utilizing current revenue surpluses to shore up those funds and plump up the “rainy day” fund to smooth future shortfalls is a prudent approach and one being advanced by conservative legislators. Any further use of the surplus should also be limited to one time needs and not used to fund ongoing programs.

Governor Wolf is proposing to funnel hundreds of millions more into public education despite the fact billions in federal COVID relief funds have already been distributed directly to school districts. This is a trap we have seen before. During the Obama Administration a federal program designed to combat the effects of the “Great Recession” provided a one-time funding bump to state government.  Governor Ed Rendell designated much of it to public education.

Despite the singular availability of the funds, school districts used the money to pay for ongoing programs. Governor Tom Corbett took office and did not backfill the lost federal funds with state dollars. He was then accused of having “cut” funding to public education even though state funding actually increased.  Corbett subsequently lost his bid for re-election.

Democrats are also proposing to send one-time “stimulus” checks to Pennsylvania families.  Inflation is currently at a 40 year high precisely because the Federal Reserve expanded the money supply to fund the trillions in stimulus programs passed by congress during the COVID-19 pandemic.  There was no corresponding increase in productivity to off-set the impact of printing all that cash creating a situation where too much money is chasing too few goods and services: the classic definition of inflation.

The Federal Reserve is now raising interest rates to cool off the economy and bring down inflation. Stimulating the state’s economy by shoveling more cash out the door would counter those measures and contribute to ongoing high inflation.

Bottom line: the Republican majority in the state legislature needs to resist Democratic calls for profligate spending, and reserve the current surplus for strengthening the state’s fiscal position going forward. That is the message voters sent last month in ousting those who compromise in the name of “getting things done” rather than charting a fiscally responsible course.

We will find out soon whether or not the lesson has been learned.

 (Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal and American Radio Journal.  His e-mail address is [email protected].)

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