Window Dressing?

Member Group : Lincoln Institute

At first glance they would appear to be singing off of the same song sheet. The most liberal governor in America says we have to "live within our means." The most conservative state legislature in recent memory wants to "reinvent and restructure" the way Pennsylvania develops its budgets.

Will the soft melody of Kumbaya soon be echoing across Penn’s Woods?

Put the harmonica away, no such thing is about to happen. Governor Tom Wolf understands math as well as the next guy. He knows the grandiose tax and spend agenda advanced in his first budget address would last about as long as a snowflake in Hades. Now the governor is taking a more nuanced approach that includes an attempt to co-opt the language of the Right.

Fiscal as well as political reality is driving the governor’s new approach. Latest figures from the Revenue Department project a $700 million revenue shortfall by the end of the fiscal year. Add that to the so-called "structural budget deficit" of about $1.3 billion, and we begin the budget process about $2 billion in the red.

To start closing the gap the Wolf Administration did what governments often do – spend more money. He hired the Pittsburgh firm of McKinsey & Company to the tune of $1.8 million to do a study to determine where money could be saved. Not spending $1.8 million to learn what we already know would have been a good start.

Wolf will continue to nibble around the edges by closing a couple of state prisons, consolidating a few departments (with no defined cost savings), and reducing the state workforce by offering early retirements. He will then correctly claim this didn’t get the job done and push for new taxes, especially a severance tax on natural gas production.

None of this, however, addresses the real cost drivers gobbling up dollars in the state budget. Absent real reform of the state’s public employee pension systems no amount of minor snipping will bring the budget into balance. The only way to cure a "structural budget deficit" is to change the structure.

And that is what Republican leaders are proposing. In the Senate, Majority Leader Jake Corman (R-Center) has held firm to his pledge not to allow any broad-based tax hikes until cost drivers like pension reform are addressed. Unfortunately this left the door open for a wide range of targeted tax hikes, a strategy that was tried this budget year and resulted in an even higher deficit.

Over in the House GOP leaders are talking about an entirely new approach to budgeting. House Speaker Mike Turzai (R-Allegheny) has pointed out that since 2001 Pennsylvania’s general fund budget has ballooned by more than 50% — this at a time when inflation was low or flat. The income of Pennsylvania taxpayers did not keep pace with the rise of government spending during that period.

Speaker Turzai has raised anew a much talked about, but never implemented, strategy of adopting zero- based budgeting. Currently the starting point for developing a budget is the previous year’s budget. Rather than look at whether or not that spending was necessary, the discussion centers on how much more will be spent. Under zero-based budgeting nothing is assumed and all spending must be justified.

That takes power away from entrenched bureaucracies and puts it back into the hands of elected officials. State Senator Scott Wagner (R-York), a successful private sector entrepreneur, has complained loudly about his inability to get information from state departments. He has even had to resort to filing Right to Know requests to get financial data from department’s whose budget he funds.

House Majority Leader Dave Reed says he wants to "reinvent and restructure how government operates in Pennsylvania." That is exactly what must happen. But to do so will require making some difficult and politically unpopular decisions, including reforming the state’s public employee pension systems and enacting dramatic spending cuts because as Speaker Turzai pointed out, we have a spending problem not a revenue problem.

With the governor’s budget address behind us the real work of crafting the 2017-2018 state budget now gets underway. The question is will we really "spend within our means" as the governor suggests; will we really "restructure" how government operates? Or have all the words so far been mere window dressing for a 2018 governor’s race now underway?

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

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