Court Ruling Blows $800 Million Hole in Budget

April 16, 2010

An already difficult state budget was made much worse this week by a court ruling that more than doubles the current budget shortfall facing Pennsylvania.

Pennsylvania's Commonwealth Court ordered the state to return $808 million to the MCARE Fund, a state-run program that provides excess medical malpractice coverage to physicians.

Pennsylvania is already facing a recession-driven revenue shortfall of nearly $720 million - a figure that is likely to grow over the remaining three months of the 2009-10 fiscal year. This court ruling could push the year-end deficit to close to $2 billion. That would likely spark a repeat of what we saw last year, when the General Assembly made deep cuts to job training, environmental protection, libraries, and services for children and vulnerable adults.

The court case involves $808 million in transfers from the MCARE Fund and another fund used to help physicians pay malpractice premiums. The transfers were approved by the General Assembly in October to balance the 2009-10 state budget.

The court ruled that the state mishandled subsidies provided to doctors to help them pay malpractice premiums between 2002 and 2007, and that the transfers in October left the state MCARE Fund unable to pay future judgments against physicians.

Governor Rendell said on Thursday that the state would appeal the court decision. If the ruling holds up on appeal, Pennsylvania would have to make hundreds of millions of dollars in cuts, raise additional revenue, or both to keep the 2009-10 budget in balance.

How Can You Help?

Even before this week's ruling, some lawmakers were insisting that cuts to health care, education, and other services are the only way to close the budget gap. 

Going forward, we need a more balanced approach that includes reasonable revenue measures, as well as efficiencies, to allow the Commonwealth to maintain investments in Pennsylvania's economy and its future during this prolonged recession.

The state should end special tax treatment for certain businesses and industries, like natural gas and tobacco companies, and close corporate tax loopholes that allow major multi-state companies to avoid taxes on Pennsylvania profits. Lawmakers have a choice: make tax changes that serve the public interest above special interests, or make further cuts to education, libraries, health care and job training.

You can help by signing up to be part of the Better Choices for Pennsylvania coalition. Read more about the coalition and sign up today.