Pennsylvania would benefit from switching from its current impact fee to a severance tax. Depending on the estimate, the severance tax could raise two to four times as much revenue as we expect from the impact fee, with this difference growing over time.
Whether the revenue gain from switching to a severance tax is $400 million, $600 million, or more, this is exactly the type of recurring revenue needed to help restore harmful cuts to our schools, help bridge an estimated $2 billion funding gap in 2015-16, and help close the state’s ongoing structural deficit where revenues grow more slowly than spending.
Budget Secretary Charles Zogby confirmed during his final mid-year budget briefing that Pennsylvania will face a $2 billion budget gap next year. After balancing the 2014-15 spending plan with one-time resources, Secretary Zogby acknowledged that crafting a 2015-16 budget will be difficult for the next administration. This sentiment echoes what the Independent Fiscal Office (IFO), bond-rating agencies, and others (including we here at PBPC) have been saying for months.
Today’s mid-year budget briefing by Budget Secretary Zogby confirms the warnings issued by the Independent Fiscal Office and the independent ratings agencies about Pennsylvania’s dire financial condition. The Commonwealth can no longer rely on one-time fixes to balance its budget. We need long-term solutions that will restore fiscal stability and allow the Commonwealth to grow.
“The Independent Fiscal Office today warned of a significant and growing budget shortfall that must be addressed by the Governor and General Assembly as a first order of business in 2015. That yearly shortfall is expected to grow from $1.85 billion next year to nearly $2.6 billion by fiscal year 2019-20. The IFO attributes this large gap next year to one-time revenues and expenditure shifts used to balance the current year budget that will not be available in 2015-16."
The final budget includes $5,526,129,000 in Basic Education funding for 2014-15, which is the same as the 2013-14 appropriation. Funding for Special Education is increased, with funding to be allocated according to a new formula, and the Ready to Learn block grant was established.
Pennsylvania enacted deep cuts to funding for public higher education since 2010-11. Even before these cuts, Pennsylvania ranked low among states in funding for higher education and in the affordability of public higher education. This report summarizes key insights from the economic research literature on the importance of higher education and presents basic information on Pennsylvania’s investment in higher education.
The Pew Charitable Trust recently looked at how all 50 states are recovering from the Great Recession (late 2007 to mid-2009) and the challenges – loss of tax revenue, depletion of cash reserves, increased demand for certain services – they faced. A closer look at the Pennsylvania data showed that spending and tax cuts in 2011 reversed Pennsylvania’s initially robust recovery of state revenues following the Great Recession.