Shortsighted Policies Led to PA's Money Woes

Contact: Michael Wood, Research Director, mwood@pennbpc.org, (717) 255-7180.

Pennsylvania is already short of money and borrowing to pay bills less than three months into a new budget year. And that's after transferring $225 million from other state funds in July.

State officials can't blame a natural disaster, unfortunate accident or month of unexpectedly low tax collections. Instead, the culprit is a built-in imbalance between revenues and expenditures triggered, in large part, by policymaker choices.

Today’s action marks the first time in recent memory when the commonwealth has had to borrow operating cash so early in the fiscal year, particularly when the economy is expanding. The actions today should serve as yet another warning to both lawmakers and citizens of the growing price of failing to fix the state’s ongoing fiscal challenges.

This is not the first sounding of the alarm on this issue. In 2013, the Independent Fiscal Office warned of the state’s ongoing deficit. In July, Moody’s Investor Service cited the commonwealth’s “large and growing structural imbalance that reflects underperforming revenues, the continued use of one-time measures in the budget, and the ongoing deferral of restoring reserves,” when it downgraded Pennsylvania’s credit rating.  

As the rating agency made clear, the state budget is fiscally unsound, relying on optimistic revenue projections and one-time transfers that do little to correct a structural imbalance. The Rainy Day Fund hasn't been replenished since it was cleaned out in 2010 at the height of the recession.

The Corbett administration isn't exclusively to blame. Lawmakers made matters worse by adding new tax cuts the commonwealth clearly cannot afford. Examples include the House’s recent refusal to close a loophole in the bank tax that has further destabilized the state budget by limiting revenue growth as the economy expands.

A path to a more sustainable budget exists, but we need to stop digging the hole deeper. Lawmakers need to examine the tax cuts that have been whittling away at the state revenue base and adopt commonsense, recurring revenues such as a severance tax on natural gas.

We know the price of inaction: Pennsylvania’s budget situation will only grow more precarious, with more cuts to classrooms and critical services; more reliance on one-time revenues and other gimmicks to bring in quick cash; and more pressure on local property taxpayers to pick up the tab.

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PBPC statement on ST borrowing 20140916 Final.pdf111.49 KB