State Budget

Fiscal Year 2010-11

Review and Analysis
State Representative
Will Tallman
193rd Legislative District

www.RepWillTallman.com
State Budget Summary
• Final Spending: $27.84 Billion
• State Funds: $24.94 Billion
• ARRA Stimulus Funds: $2.70 Billion

• General Fund Revenue: $27.65 Billion

• Revenue Collections: -$1.18 Billion (Below Estimate)
Budget
Notes

• More than $2 Billion in revenue transfers were needed to support this spending plan.

• Reserve funds were exhausted in the 2009-10 budget, specifically the Rainy Day Fund.

• Commonwealth Court ruled that up to $716 Million in funds used to finance this budget
(MCare and Health Care Provider Retention Account) must be repaid from the General Fund.
Rendell Budget Proposal
• Proposed Spending: $29.03 Billion
• State Funds: $26.27 Billion
• ARRA Stimulus Funds: $2.76 Billion

• Spending Increase: $1.29 Billion or 4.6 Percent.

Budget
Notes
• The Rendell Budget proposal assumed a revenue shortfall of $525 Million for FY 2009-10.

• The $2.76 Billion in ARRA funds used to support this spending plan includes $850 Million in
yet-to-be-approved federal Medical Assistance (FMAP) dollars.

• More than $800 Million in new taxes were included in the governor’s budget proposal for FY
2010-11. Although they were not originally intended to be spent in this fiscal year, the
governor added the new taxes to his spending plan when revenues continued to decline.
Final Enacted Budget
• Proposed Spending: $28.04 Billion
• State Funds: $25.29 Billion
• ARRA Stimulus Funds: $2.75 Billion

• Spending Increase: $207.2 Million or 0.74 Percent.

Budget
Notes

• As the governor proposed, the final budget assumed the state would receive $850 Million in
yet-to-be-approved federal Medical Assistance (FMAP) dollars.

• An additional $30 Million was transferred from various special state funds to help balance
the 2010-11 spending plan.
General Fund Spending: $28.04 Billion

All Other Spending,

$2.70 Billion
9.6%
Corrections,
$1.87 Billion
Debt Service, 6.7%
$1.05 Billion
3.7% PreK-12 Education,
$10.02 Billion
35.7%

Public Welfare,
Higher
$10.44 Billion
Education,
37.2%
$1.96 Billion
7.0%

NOTE: Funding includes $2.75 Billion in federal ARRA dollars.

General Fund Revenue: $26.71 Billion
* Official Estimate Capital Stock
And Franchise Tax,
$767 Million, 2.9%
Corporate Net
Non-Tax Revenue, All Other Taxes, Income Tax,
$1.02 Billion, 3.8% $2.75 Billion, 10.3% $1.85 Billion,
Inheritance Tax, 6.9%
$771 Million, 2.9%

Sales and Use Tax,

$8.34 Billion, 31.2%

Personal Income Tax,

$10.12 Billion, 37.9%

Cigarette Tax,
$1.09 Billion, 4.1%

NOTE: Revenue only reflects state dollars. Federal ARRA funds are not included in this chart.
House Republican
Budget Analysis
State Budget Analysis
• House Republican Accomplishments
Defeating the Rendell Tax Increases: Despite the governor’s call to increase
taxes by more than $800 Million as part of his budget proposal for FY 2010-
11, we were successful defeating all tax hikes in this budget.

Controlling State Spending: While Governor Rendell advocated for a $29

Billion budget that increased spending by more than $1.2 Billion, we were
able to cut $1 Billion from his original proposal.

Meeting the Deadline: Throughout the budget process, we called for

cooperative action on the state’s annual spending plan to ensure it was
approved by June 30. In turn, the legislature was able to meet the
constitutional deadline and prevent the type of fiscal pain felt by human
service providers, educational institutions and non-profit organizations as a
result of last year’s impasse.
State Budget Analysis
• House Republican Concerns
Federal Revenues: The budget was balanced at the governor’s demand on the
assumption the state would receive $850 Million in new federal Medical
Assistance funds. Congress recently approved funding, but the state will only
receive about $600 Million. Coupled with other federal Medical Assistance
funding adjustments, the budget now yields a $280 Million shortfall.

Spending: Despite continued calls for fiscal restraint and our success in
cutting $1 Billion from the governor’s proposal, this $28 Billion budget did not
go far enough in controlling state spending.

Structural Deficit: With the looming loss of more than $2 Billion in existing
stimulus funds and the potential $716 Million funding hole that will exist if
the governor’s appeal of the Commonwealth Court ruling on MCare is lost,
the state is facing at least a $3 Billion structural deficit in FY 2011-12.
 Rendell-Proposed
Budget Adjustments
Rendell Budget Cuts – August 2010
• Accounting for Less-Than-Anticipated Federal Funds
• Original FMAP Funding Assumption: $850 Million
• Approved FMAP Funding: $600 Million (Approximately)
• Total Budget Shortfall: -$280 Million
(Includes -$30 Million in other federal MA funding adjustments)

Budget
Notes
• To offset the $280 Million budget funding hole that now exists, the governor has proposed
the following plan:
• $212 Million in Budget Cuts
• 1.9% Across-the-Board Reduction.
• $50 Million Reduction in the Basic Education Subsidy’s Approved Increase.
• Assumes the enactment of a severance tax to generate $70 Million.

House GOP: Throughout the budget negotiations, House Republicans advocated for a contingency plan for the assumed
federal funds in the event they were not approved or approved at a lesser amount. The governor rebuffed this plan.
Summary of Expenditures
PreK-12 Education (As Enacted)
• Funding: $10.02 Billion
• State Funds: $9.36 Billion
• ARRA Stimulus Funds: $654.7 Million (All to Basic Education)
Budget
Notes
• The state’s Basic Education Subsidy was approved to provide Pennsylvania’s 500 school
districts with $5.78 Billion – a $250 Million increase over 2009-10.

• Special Education funding will remain at the 2009-10 levels of $1.03 Billion.

• Many education programs saw funding reduced in this budget. Accountability Block Grants,
Pre-K Counts, Services to Non-Public Schools and Public Libraries are among those that saw
funding reduced.

STIMULUS IMPACT: The loss of stimulus funds in 2011-12 will result in a minimum $654 Million funding hole in the state’s
Basic Education Subsidy.
PreK-12 Education (August 2010 Update)
• Rendell Budget Adjustments
• Education funding will be reduced by $69 Million.
• The Basic Education Subsidy accounts for $50 Million of the
total reduced funding.

Budget
Notes

• The new Basic Education Subsidy after the governor’s recent move will total $5.72 Billion.
This still represents a $200 Million increase over 2009-10.

• While there was a reduction in the approved-subsidy increase for 2010-11, the federal
government recently approved another $380 Million to support Pennsylvania schools.
Altogether, Pennsylvania schools are now slated to received $580 Million in new funding from
the state and federal government.
Higher Education (As Enacted)
• Funding: $1.96 Billion
• State Funds: $1.87 Billion
• ARRA Stimulus Funds: $90.9 Million
Budget
Notes
• All Higher Education Funding for the state’s colleges and universities remained level funded
with the 2009-10 budget.
PSU: $333.9 Million Temple: $172.7 Million SSHE: $503.4 Million
Pitt: $168 Million Lincoln: $13.8 Million Community Colleges: $282.1 Million
Includes $46.4 Million in Community College Capital funding

• The Pennsylvania Higher Education Assistance Agency (PHEAA) received $438.7 Million – a
$16.4 Million reduction from 2009-10.

STIMULUS IMPACT: All higher education institutions will see a funding hole equal to the amount currently received in this
budget come 2011-12. PHEAA will not be affected, as the agency receives no ARRA funds in this budget.
Higher Education (August 2010 Update)
• Rendell Budget Adjustments
• PHEAA Funding Reduction: -$8.3 Million
• Approved Funding: $438.7 Million
• Rendell-Adjusted Funding (August 2010): $430.4 Million

Budget
Notes

• Combined with the $16.4 Million in funding that was cut from PHEAA as part of the 2010-11
enacted budget, the new cuts the governor has proposed will total a $24.8 Million reduction in
funding from the prior year.

• Nearly $7.4 Million of the newly proposed cuts to PHEAA will come from the Student Grant
appropriation, which is PHEAA’s largest budget line item.
Public Welfare (As Enacted)
• Funding: $10.44 Billion
• State Funds: $8.61 Billion
• ARRA Stimulus Funds (FMAP): $1.83 Billion
Budget
Notes
• The $1.83 Billion in ARRA funds included $850 Million in anticipated FMAP money that was
assumed in the governor’s budget proposal.

• Medical Assistance accounts for approximately half of all Public Welfare funding and receives
the largest portion of ARRA funds coming to the state.

• Since the Rendell Administration took office in 2003, more than 600,000 people have been
added to the state’s welfare population through the Medical Assistance program.

STIMULUS IMPACT: The loss of stimulus funds will leave a budget hole in the Department of Public Welfare for 2011-12.
Reevaluation and changes to DPW’s budget and administrative operations must be made to help offset the loss in funds.
Public Welfare (August 2010 Update)
• Rendell Budget Adjustments
• Rendell-Funding Adjustments in State Dollars: -$57.9 Million
• This proposed reduction would be among the funds needed
to offset the receipt of less-than-anticipated FMAP funds.

Budget
Notes

• While the Rendell Administration assumed the state would received $850 Million in new
federal FMAP funds in the 2010-11, the state will receive approximately $600 Million.

• Altogether, about $1.6 Billion in federal ARRA funds are being used to balance DPW
expenditures in the 2010-11 state budget. None of these funds will be available next year.
Corrections (As Enacted)
• Funding: $1.87 Billion
• State Funds: $1.69 Billion
• ARRA Stimulus Funds: $180.3 Million
Budget
Notes
• Corrections has remained one of the fastest growing expenditures in the state budget over
the last decade.

• Inmate population growth has been a driving factor behind the growth in the corrections
budget. To date, the state’s 27 prisons house more than 51,000 inmates – 17 Percent over
capacity.

• Overcrowding has forced the state to send 2,100 inmates to be housed out of state.

STIMULUS IMPACT: The loss of stimulus funds in 2011-12 will cut $180 Million from the Corrections budget, taking the
department back to 2007 funding levels.
Corrections (August 2010 Update)
• Rendell Budget Adjustments
• Corrections funding will be reduced by $32.2 Million.
• Approved Funding: $1.87 Billion
• Rendell-Adjusted Funding (August 2010): $1.84 Billion

Budget
Notes

• The funding reductions proposed by the governor would cut $26.2 Million from the state
correctional institutions operating expenses, and it would cut another $4.6 Million from the
Inmate Medical Care Appropriation.

• Each of these appropriations will still see an increase over what was provided in fiscal year
2009-10.
Debt Service (As Enacted)
• Funding: $1.05 Billion
• State Funds: $1.05 Billion
• ARRA Stimulus Funds: NONE
Budget
Notes
• Debt Service must be paid annually from the General Fund budget before any other
expenditures can be financed. General Fund debt service payments are divided among two
line items: General Obligation Debt Service (Treasury) and a Transfer to the Commonwealth
Financing Authority (DCED).

• As a result of drastic increases in borrowing under the Rendell Administration, annual debt
service has increased by nearly $400 Million since 2003.

• The state’s total debt outstanding to be paid from the General Fund currently stands at more
than $11 Billion – about a $5.7 Billion increase under Governor Rendell.
All Other Spending (As Enacted)
• Funding: $2.70 Billion
• Includes funding for the following:
Partial List of Departments classified as All Other Spending

• Agriculture • State Police • State House and Senate

• DEP • Labor and Industry • Governor’s Office
• DCNR • Health • Executive Offices
• DCED • Row Offices • Judicial Branch

Budget
Notes
• Nearly every agency saw overall funding reduced in this budget. The 2010-11 budget marked
the second consecutive year in which significant cuts were made to agencies and their
respective programs.

• Of those noted above, only DCED received an increase over the prior year’s budget. The
Judicial Branch was level funded.
All Other Spending (August 2010 Update)
• Rendell Budget Adjustments
• Implemented a 1.9 Percent across-the-board cut to agencies
classified under All Other Spending.
• Approved Spending: $2.7 Billion
• Rendell-Adjusted Funding (August 2010): $2.6 Billion

Budget
Notes

• Since the state began to yield year-end deficits beginning in 2008-09, the departments and
agencies classified under the All Other Spending category represent those that have exhibited
the greatest reductions in funding.
Budget-Related Issues
Capital Budget
• As part of an agreement between Senate Republicans, House
Democrats and Governor Rendell, two Capital Budget bills were
approved along with the General Fund Budget:
• House Bill 2289: Authorizes the state to issue up to $1.59 Billion in general
obligation bonds to pay for capital projects during the 2010-11 fiscal year. It
also itemizes $335.9 Million in projects to be funded at the governor’s
discretion. (Includes projects honoring Senator Arlen Specter and the late-
Congressman John Murtha).

• House Bill 2290: Increases the cap on the amount of debt that may be
outstanding at any one time for Redevelopment Assistance Capital Projects
(RCAP) by $600 Million. This creates a new limit of $4.05 Billion for RCAP
projects.
House GOP: These measures were widely opposed by House Republicans.
Budget If all $600 Million in debt is issued under House Bill 2290, it will cost
Notes taxpayers $963 Million to repay over 20 years.
Capital Budget – RCAP
$4.05 Billion

$4,000,000,000
179% Increase in RCAP Debt Allowance
Under the Rendell Administration
$3,500,000,000

$3,000,000,000

$2,500,000,000

$2,000,000,000

$1,500,000,000

$1,000,000,000
2003 Act 49 of 2003 Act 67 of 2004 Act 87 of 2005 Act 48 of 2008 Act 48 of 2010
Pre-Rendell

Budget Since taking office in 2003, Governor Rendell has increased the state’s RCAP
Notes debt cap by $2.6 Billion, adding to the state’s growing debt service costs.
Marcellus Shale – Natural Gas Extraction
• As another budget-related agreement, the majority parties in the
House and Senate agreed to consider legislation in the fall that
would deal with raising additional revenue from the extraction of
natural gas.
• SB 1042 (Fiscal Code)
“It is the intent of the House Majority Leadership and Senate Majority
Leadership to pass legislation that raises revenue from the extraction of
Marcellus Shale natural gas by October 1, 2010, with an effective date for
implementation no later than January 1, 2011.”

Budget
Notes

• Regarding the aforementioned agreement, it is important to note that any future revenue
generated from Marcellus Shale legislation would supplement existing revenue, as the funds
are not needed to balance the 2010-11 state budget.
Independent Fiscal Office
• Another non-budget-related provision added to the agreement
dealt with the creation of an Independent Fiscal Office.

• SB 1042 (Fiscal Code)

“It is the intent of the House Majority Leadership and Senate Majority
Leadership to pass legislation establishing a new independent agency to be
known as the Independent Fiscal Office no later than October 1, 2010, with
an effective date for implementation no later than January 1, 2011.”

Budget
Notes

• A similar proposal is found in Senate Bill 1, which calls for a fiscal office to fulfill the
following responsibilities relative to the state budget:
• Prepare Revenue Estimates • Develop Performance Measures
• Analyze Executive Budget Proposal • Provide a Baseline Budget
• Monitor State Taxes • Assess the State’s Fiscal Standing
 Pennsylvania’s
Financial Outlook
Loss of Stimulus Funds

ARRA Stimulus Funds

Basic Education: $655 Million

Higher Education: $91 Million

Corrections: $180 Million

*Public Welfare: $1.6 Billion

General Fund Revenue

Total: $2.5 Billion
$26.71 Billion
* ARRA funds for DPW are based on
estimates and are subject to change.

Budget The loss of ARRA stimulus funds will cut more than $2.5 Billion from the
Notes revenues available to balance the state budget in 2011-12.
General Fund Revenue Collections
2009-10: Included $2.1 Billion
Billions in Fund Transfers
GF Tax Revenue
$28.000
GF Non-Tax Revenue

$26.000

$24.000

$22.000

$20.000

$18.000

$16.000

$14.000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11* Estimate

Budget Even if state tax revenues realize a 3 Percent growth in 2010-11, the state will
Notes begin the 2011-12 Fiscal Year with a tax revenue base less than that of 2006-07.
Pension Spike and Future Costs
• The state’s two pension systems (SERS and PSERS) are facing a
multi-billion dollar unfunded liability.
• The Effect of the Recession
The recession prompted major losses in the state’s pension systems’
investments. PSERS alone yielded a 26.9 Percent loss in assets during 2008-09
as a result of the economic decline. With about 77 Percent of the state’s
pension funds coming from investments, the recession has been a significant
factor in the state’s pension funding concerns.
• Employer Contribution Rates for 2010-11
PSERS: 5.64 Percent (2009-10 Rate was 4.78 Percent)
SERS: 5 Percent (2009-10 Rate was 4.0 Percent)

Budget
Notes
• In June, House Republicans were successful in adding key pension reforms to House Bill
2497. The reforms would help the state and school districts better control future pension
costs. The bill is now before the state Senate.
 House Republican
Efforts and Solutions
House Republican Efforts and Solutions
• Revenue Solutions / Cost-Savings Options
• Over the last several months, House Republicans have unveiled a list of
proposals that could account for billions of dollars in combined new revenue
and cost-savings – all without increasing taxes. These proposals include but
are not limited to the following:
• Privatize the state’s liquor stores.
• Better management of the state’s vehicle fleet.
• Process other state’s SSI Payments.
2010-11 Budget
• Expanding purchasing power – P-Cards.
• Correct tax refund errors.
• Merge PennDOT and the PA Turnpike Commission.
Budget
Notes
• The House GOP plans relating to P-Cards and tax refund errors were used in the 2010-11
budget as an alternative to new taxes. Greater use of these would lead to greater savings.
House Republican Efforts and Solutions
• Eliminating Documented Waste, Fraud and Abuse
• Auditor General Jack Wagner has issued multiple audits citing rampant
waste, fraud and abuse in the Department of Public Welfare that was first
brought to light by House Republicans.

• An audit of DPW’s Medical Assistance program cited a 14 Percent error rate

in determining MA eligibility among 12,000 applications in 2009 (53 counties).

• The Auditor General has cited a possible savings of approximately $320

Million by reforming DPW’s administration of this program.

Budget
Notes
• Given the massive increase in the state’s Medical Assistance population under Governor
Rendell – 660,000-plus have been added for an increase of 44 Percent – it is necessary to
question the department’s operations given the Auditor General’s findings.
House Republican Efforts and Solutions
• Guidelines for the Future
• In order to prepare for the future and help rebuild Pennsylvania’s struggling
economy, House Republicans believe we must follow the following plans:

Control Spending: For years, the Rendell Administration has increased

spending at a faster rate than state revenues could grow. We need to ensure
future budgets spend only what we can afford.

Foster Job Growth: Pennsylvania ranks among the most non-business-friendly

states in the nation. In recent years, taxing businesses and job creators has
been the Rendell Administration’s solution to revenue concerns. We must
reverse this trend and create a more business friendly and regulatory climate.

Increase Efficiencies: The state needs to reevaluate programs and services to

eliminate those that are no longer needed, consolidate those that are
duplicative and enhance those that have already proven to be successful.