Analysis: Pennsylvania’s 2011-12 Budget
July 13, 2011
On June 30, the Pennsylvania General Assembly completed work on a 2011-12 state budget that achieves Governor Tom Corbett’s primary objective — to meet a target spending number of $27.3 billion or lower, regardless of the impact. The final budget spends $27.249 billion, the lowest amount since the 2008-09 enacted budget, with cuts totaling more than $960 million.
The budget employs a series of gimmicks to reduce the spend number. For example, it shifts some education and managed care costs from 2011-12 back into the 2010-11 fiscal year and delays some nursing home payments until 2012-13. It adds money to the General Assembly’s 2010-11 budget, which makes the Legislative Branch’s 2011-12 increase look smaller.
The budget uses only a small portion of a $786 million 2010-11 year-end surplus — around $200 million. The Governor’s March budget proposal predicted a year-end surplus of just $78 million; the final surplus is 10 times that amount. State lawmakers chose to make cuts to education, health care and human services in 2011-12 rather than use a greater share of the surplus.
Under current law, 25% of a year-end surplus is designated for the Rainy Day Fund, and the rest is available for appropriation in the next fiscal year. In the budget, the transfer to the Rainy Day Fund was suspended, a condition of receiving funds through the American Recovery Act (ARRA). With 2010-11 lapses, perhaps as much as $1 billion is carried forward and unappropriated in 2011-12.
The budget presumes revenue growth of 1.2% in 2011-12, far less than the 4.7% assumed in the Governor’s budget in March. If revenue grows faster, which seems highly likely, the General Fund will accumulate a healthy surplus going into next year’s budget and could set the stage for big tax cuts in what will be an election year.
|General Fund Summary (in $ thousands)|
|Federal ARRA Funds||$3,054,992||$0||$0||(3,054,992)||-100%|
|Total Spending (with Tobacco Fund)||$28,486,218||$27,331,219||$27,485,168||(1,001,050)||-3.5%|
The biggest challenge for 2011-12 was replacing more than $3 billion in ARRA dollars. That money helped make up for reduced state revenue during the recession, preventing program cuts and job losses. While most Department of Public Welfare (DPW) programs had ARRA dollars replaced, most of the education programs did not.
Public schools and universities bear the brunt of the reductions in the 2011-12 budget. Grants to school districts, including the basic education subsidy, reimbursements to school districts for the loss of students to charter schools and other program cuts total more than $860 million, while higher education institutions, including Penn State and the other three state-related universities, community colleges, and the 14 State System of Higher Education universities, are reduced by $245 million.
The budget also makes big reductions to DPW programs, including welfare-to-work and human services. While the overall reduction from current year spending is relatively small, less than 1%, the budget underestimates hundreds of millions of dollars of spending in the Medical Assistance program, which will either be addressed through supplemental appropriations later in the fiscal year or through program savings.
The Welfare Code bill enacted in concert with the budget gives DPW broad authority for one year to make program changes to cut costs. This includes the ability to sidestep formal rulemaking processes and to change program eligibility, modify benefits and provider payments, and to eliminate presumptive eligibility. This authority is granted with the goal of keeping DPW expenditures, including expenditures on entitlement programs, within budgeted amounts.
Despite furious last-minute activity, the budget, once again, fails to adopt a tax on natural gas drilling in the Marcellus Shale. In 2010, drilling tax proposals would have used some revenue to avoid budget cuts; in 2011, none of the leading proposals have an impact on the General Fund.
The budget also failed to address publicly financed school vouchers, despite a late push by the Governor. Voucher proposals in the House and Senate would have cost an additional $75 million to $200 million in the first year. This issue is likely to be debated by the General Assembly in the fall.