2013-14 Budget Analysis: Modest Increases in Governor's Plan Rely on Uncertain Funding Sources

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Governor Tom Corbett proposed a 2013-14 budget of $28.4 billion — up $400 million, or 1%, from the budget in place when he took office in January 2011. The budget proposes expensive new corporate tax breaks that will continue to shift costs to individuals and local taxpayers, while failing to restore deep cuts to public schools, keep college affordable for middle-class students, or ensure working families can obtain basic health care.

The budget does little to reduce the trend of disinvestment in Pennsylvania schools and communities, while providing modest increases in several areas, notably services for children and for people with disabilities. The program improvements may be hard to retain, as they rely on funding from reductions in pension spending that are by no means certain.

On its face, the budget proposal seems like a warm tale: after years of belt-tightening, an improving economy permits modest increases across state government — from education to health care to economic development.

Closer examination of the plan reveals its fundamental problems. While the recovering national economy has triggered a modest increase in tax collections, those tax dollars are not used to support program increases. Instead a sizable share of the budget’s increased funding comes from unproven sources. These include higher profits from a privatized lottery for senior services and a new education initiative called “Passport for Learning,” which depends on the successful sale of the state liquor store system, a proposal that has not gained legislative approval in two prior attempts. The budget redirects as much as $177 million from the state’s required contribution to public employee pensions, relying on savings from reduced benefits for current employees — a proposal that requires legislative support and court approval, both of which will be hard to secure. Without these uncertain revenue sources, the budget plan will likely have to be reworked — and many of the proposed gains will be lost or require new sources of funding.

2013-14 General Fund Summary
(in $ thousands) 
  Actual 2010-11 2012-13 Available (Feb. 2013) 2013-14 Governor’s Budget Change from 12-13 Available Percent Change Change from 10-11 Actual Percent Change
Total State $28,039,791 $27,760,966 $28,439,734 $678,768 2.4% $399,943 1.4%

The proposed budget adds $90 million in funding to the Basic Education subsidy for public schools, an increase of 1.7% over the current year. This increase does little to restore the $840 million cut by Governor Corbett during his first budget, with 85% of those cuts still intact two years later.

The budget maintains cuts to higher education in effect since 2011-12, doing little to prevent college from slipping out of reach for a growing number of Pennsylvanians.

A number of human services see modest increases in the budget. More children are insured, a few waiting lists are reduced, and more resources are devoted to long-term care — all good things. The budget does not include an opt-in to the Medicaid coverage expansion made possible under the Affordable Care Act, which could provide affordable insurance to as many as 700,000 working Pennsylvanians and bring in tens of billions in federal health care dollars to the state. The Governor left some room for a different decision should certain conditions be met.

The budget includes major new business tax breaks, including $250 million in lost revenue from the continued phase out of the capital stock and franchise tax, which will be eliminated in 2014. As late as 2007-08, this tax generated more than $1 billion in revenue for the state. The budget also proposes an increase in the net operating loss allowance for corporations and a new phase-down of the corporate net income tax rate, which would ultimately cost hundreds of millions of dollars of lost revenue each year. All of these benefits for business are proposed without an effort to close existing tax loopholes that allow some businesses to pay less than their fair share.

The budget plan also includes a much-needed increase in investment in transportation infrastructure, funded largely through a change in the oil franchise tax to reflect market prices.

The budget is a clear reflection of Corbett administration priorities. The administration continues to favor tax cuts for businesses at the expense of middle-class families who rely on good schools, affordable college tuition, and health care.

Download a PDF Version of the Full Budget Analysis