Pennsylvania State

Budget
By Nathan Benefield
Commonwealth Foundation
Thomas Jefferson:
The natural progress of things is for liberty to
yield and government to gain ground.

James Madison:
I believe there are more instances of the
abridgement of freedom of the people by
gradual and silent encroachments by those in
power than by violent and sudden
usurpations.
 PA Taxes Add Up
• Pennsylvania has the 10th highest state and
local tax burden, up from 24th in 1990
• Pennsylvania taxpayers pay $4,190 per capita
in state and local taxes, 10.1% of their income
• Pennsylvania ranks 20th or higher in state and
local total taxes, spending, property taxes,
income taxes, corporate taxes, and debt per
capita
 PA State Debt
Pennsylvania State & Local Government Debt
D ebtor D ebt Outstanding Per C apita
Total State $4 4,7 01 ,1 5 9 ,00 0 $ 3 ,5 9 5
State $10,487,159,000 $844
State Agencies & Authorities $34,214,000,000 $2,752
Total Local $8 2,6 01 ,6 2 6 ,45 6 $ 6 ,6 4 4
School Districts $26,059,284,754 $2,096
County/Municipal/Twp/other $56,542,341,702 $4,548
Total $127,302,785,456 $10,239
So urces : Go verno r's Executive Bud g et (http ://www.b ud g et.s tate.p a.us ) Decemb er 2 0 10 d ata; PA Dep t o f
Ed ucatio n (htt p ://www.p d e.s tate.p a.us ) J une 2 0 0 9 d at a; U.S. Cens us Bureau
(http ://www.cens us .g o v/ g o vs /www/es timate.html) 2 0 0 8 d ata/2 0 0 9 p ro jected b y Co mmo nwealth Fo und at io n

Pennsylvania State, State Agencies & Authorities Debt

D ebtor D ebt Outstanding 2 0 0 2 D ebt Outstanding 2 0 1 0 Increase C hange
State $6,805,184,000 $10,487,159,000 $3,681,975,000 54%
State Agencies & Authorities $16,848,800,000 $34,214,000,000 $17,365,200,000 103%
Total State $ 2 3 ,6 5 3 ,98 4 ,0 0 0 $ 4 4 ,7 0 1 ,1 5 9 ,0 0 0 $ 2 1 ,0 4 7 ,1 7 5 ,00 0 89%
So urces : Go verno r's Execut ive Bud g et (ht t p :// www.b ud g et .st at e.p a.us ) Decemb er 2 0 10 d ata
 State Paying Firms to Come to
Pennsylvania
• “Economic Development” Subsidies 2009-10
– Ohio – $860,594,397
– Pennsylvania - $754,651,000
– California - $734,225,000
• Recent Examples
– Harley Davidson
– Sport Stadiums
– Film Tax Credit
– “Green” Jobs
 From 1991-2010, PA Ranks
• 41st in Job Growth
– 11.8%, vs. 21.7% Nationally

• 45th in Population Growth

– 5.8%, vs. 22.9% Nationally

• 47th in Personal Income Growth

– 116%, vs. 151% Nationally
 Residents “Movin’ Out” of PA
 Census Data:
 56,000 net residents lost in inter-state migration
from 2000-2009
 250,000 lost from 1990-1999
 IRS
 PA lost a net 8,791 taxpayers to other states in 2008
 Net loss of $431 million
 United Van Lines: PA has been in top 5
“outbound state” for years – over 55% of
movers leaving
 A Bit of Good News
• States Bordering PA are in Worse Shape
– New York, New Jersey, and Ohio – Among Highest
Tax States, Worst in Economic Growth, and Losing
Residents to Pennsylvania
– West Virginia and Maryland – Near PA in Tax and
Economic Rankings
– Only Delaware has Significantly Lower Tax Burden,
Stronger Economic Growth
 PA Budget Overview
• Proposed: $27.3 billion General Fund Budget ($866
million less than 2011)
• Total Operating Budget: $63.6 billion ($3 billion less
than prior year)
– Includes Motor License Fund (highways), Lottery Fund,
Unemployment Compensation Fund, Federal Funds to state
• Capital Budget (not included in operating budget):
$1.8 billion in bond issues for projects
• Independent state agencies (not included in operating
budget) Turnpike Commission, PHEAA, etc.
 Spending Since 2003
• General Fund spending increased by $7.4 billion, or
35% since 2003
– Largest growth in Education, Public Welfare,
Transportation, and Treasury (Debt Payments)
 Budget Legislation
• General Fund Budget Bill
– Includes some other funds—Motor License Fund
and Lottery Fund—which are appropriated each
year rather than by formula
• Nonpreferred appropriation bills
– Part of General Fund, but not departments of
state
– 13 bills in 2010—e.g., Penn State, Pitt, PA Public
Utilities Commission
 Budget Legislation Continued
• Fiscal Code
– Tax credits, transfers between funds, dedicates taxes to
specific funds
• Tax Code
– Any tax increase/cut
• Capital Budget
– Two bills—one to authorize borrowing/bond issues, the
second to itemize capital projects eligible for funding
• Legislation to change programs done in separate
bills
 State Budget Shortfall
• Stimulus money runs out in 2011-12
− 2010-11 budget relied on $2.7 billion in General Fund
• Rainy Day fund and other one-time revenue funds
used up (used $150 million from other funds in 2011)
• Expected growth in Medicaid, Corrections, Employee
Compensation
• MCare Fund Lawsuit
− Commonwealth Court says state must pay back $800
million taken to balance budget
 2011 Budget Proposal
• Reduced spending in K-12 Education—primarily due to
loss of stimulus funding (spending from state tax dollars
actually increases)
• $800 million less in state/stimulus aid
• Total public school spending doubled from 1995 to 2008, to
$26 billion.
• State cuts represents 3% of total school spending
• Reduction of 50% for universities: Penn State, Pitt,
Temple, Lincoln, and State System
• Community Colleges, PHEAA grants to students relatively flat
 2011 Budget Proposal
• Public Welfare Increased by $600 million,
primarily in Medical Assistance (Medicaid)
– Due to loss of federal funds, lack of flexibility
under federal law to enact changes
• Corrections budget increased by $13 million
– Reforms were part of budget address, but not
result in savings in 2012
• No New Taxes
 Education Reforms
• School Choice
– Expansion of Educational Improvement Tax Credit and
Opportunity Scholarships
• Voter Referendum on Tax Hikes above Inflation
• Mandate relief for school districts
• Allow furloughs of public school employees
• Merit Pay for Teachers
• Encourage school districts to freeze employee pay for
a year ($400 million savings)
 Higher Education
• Goal is to move away from funding institutions to
funding students and results.
• Institutional aid has not kept tuition low (e.g., Penn
State and Pitt more than double rates over 10 years).
• Four-year graduation rates at state schools 11% to
55%.
• Some campuses losing students.
– Losing in competition to lower-cost alternatives including
community colleges and online classes
 Union Contracts
• Seventeen of 19 state union contracts up this year
• Salaries
– Corbett has suggested a wage freeze. Most union
employees have received raises of 3%, 3%, and 4%, plus
2% longevity increases last three years
• Health Care
– State workers pay 3% of salary. Private sector is based on
percentage of health care costs, averages 6% of pay.
• Union Dues deductions and PAC contributions
– State Government collects these
 Left to Do
• Address Welfare and Medicaid
• Privatization task force
• Corrections spending reforms
• Legislative reform
• State Pension Crisis
• Unemployment Compensation Deficit
 State Government Pensions
• Increase in taxpayer contributions to SERS and
PSERS
– Act 120 turns “spike” into “staircase”—taxpayer
contributions to rise from $500 million in 2010 to $6
billion in 2015
• Causes
– 2001 pension benefits increase and 2002 COLA
(passed when Republicans controlled both Houses
and Governor’s office)
– 2001-02 and 2008-09 investment losses (currently
assume 8% annual return)
– 2003 & 2010 legislation to delay payments on liability
 Unemployment Compensation
• Pennsylvania’s UC fund owes $3 billion in debt
to the federal government
– Pennsylvania ranks among the top 10 states in
highest unemployment taxes per employee
– Current proposal to increase unemployment
compensation eligibility to get a one-time federal
grant of $270 million. Would cost Pennsylvania
taxpayers another $60 million each year in
perpetuity
 CF Policy Reforms
• Transparency: put spending online (HB 15, SB 105)
• Spending caps: limit the growth of spending to
inflation + population growth
• School Choice
– Educational Improvement Tax Credit, charter schools,
vouchers, and homeschooling cost much less
• Voter Referendum on Tax Hikes
• Initiative & Referendum
 More Spending Reforms
• Privatize government-run liquor stores & more
• Union Contracts: bring in line with private sector
• Redefine prevailing wage laws that increase the
cost of government construction by 30%
• Corrections reform: costs of prison/prison
construction is skyrocketing
• Eliminate Corporate Welfare
• Medicaid reform: eliminate fraud ($1 billion),
convert to voucher for private insurance
 Nathan Benefield
Director of Policy Research
Commonwealth Foundation
225 State Street, Suite 302
Harrisburg, PA 17101
717-671-1901
nate@CFPolicy.org
CFPolicy.org
Budget Links: CFPolicy.org/Budget