State Budget Should Take Balanced Approach, Move Economy Toward Recovery

HARRISBURG, PA (February 5, 2010) – As the 2010-11 budget cycle begins next week, the Pennsylvania Budget and Policy Center is calling on the Governor and state lawmakers to take a balanced approach that addresses the hardships faced by Pennsylvania families and moves our economy toward recovery.

A combination of declining tax revenue and the increased demand for health care and Foods Stamps - a consequence of the Great Recession - have hit Pennsylvania and other states hard.  Forty-eight states had to close recession-driven deficits in 2009-10, and 41, including the Commonwealth, have opened up mid-year shortfalls.
 
As Goldman Sachs observed in December, for most states, the “Great Recession has put a serious dent in the tax base and saddled the economy with the highest jobless rate in almost 30 years.” As a result, state costs for health care, unemployment and other services will remain high for years to come, while “tax receipts - whenever they start to grow - will do so from depressed levels.”

“The recession has taken a toll on Pennsylvania and the nation,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “Families are struggling, and the state has fewer resources to help them weather the recession and get back on their feet.”

As the Governor and General Assembly begin discussions of the 2010-11 budget, they should take care to aid, rather than impede, the fragile economic recovery. In addition to providing important services, state funding provides jobs in communities across the Commonwealth.

In an interview with Stateline.org, Moody’s Economy.com economist Mark Zandi said: “If we’re focused on creating jobs, state and local governments are one of the largest employers. It can’t help the job market if we’re cutting jobs.”

Ward said: “The worst thing a state could do in a recession is to weaken the public services that families rely on and a strong economy needs, like education, health care, transportation, and public safety. The state shouldn’t be a drag on our economic recovery.”

Pennsylvania relied heavily on one-time revenue sources and service cuts to complete the 2009-10 budget. Those cuts are having a real impact on Pennsylvania families:

• Social Security supplement payments for 340,000 low-income elderly and disabled Pennsylvanians have been reduced, jeopardizing their ability to pay for food or medical care.
• An 80% hike in premiums for the state’s adultBasic health care program is making coverage unaffordable for thousands of uninsured Pennsylvanians.
• School children have less access to libraries as hours are reduced and branches are closed.
• More out-of-work Pennsylvanians are finding fewer skill-building opportunities in their communities, as job training programs close shop for lack of funding.

“Lawmakers said they could balance the budget without harm to seniors, children or communities,” said Ward. “That has proven to be wishful thinking.”

Taking a Balanced Approach

Pennsylvania policymakers should take a balanced approach in crafting the 2010-11 budget and include some common-sense revenue options to meet today’s needs without undermining our economic recovery. These include closing corporate tax loopholes, enacting an excise tax on cigars and smokeless tobacco (which exists in every other state but Pennsylvania), and enacting a natural gas extraction tax.

Congressional action is needed to help Pennsylvania avoid cuts to health care and education. In his budget address on Monday, President Obama proposed extending the enhanced Medical matching rate (FMAP) to states for two additional quarters – a proposal that federal lawmakers should act upon quickly. Absent that aid, states will have to take actions that will further slow the economic recovery, according to Zandi and other economists.

Putting the 2010-11 Budget in Context

Critics contend that Pennsylvania’s spending is “too high” or that its General Fund increases have been “too large.” Evidence suggests that is not the case; overall spending is moderate and has increased at a rate lower than the national average.

Pennsylvania state spending and taxes, as a share of income, have remained stable for more than two decades. General Fund spending, which accounts for most discretionary spending in the state budget, was 5% as a share of personal income in 2009-10, compared to the national average of 5.2% (see graph).

Year-to-year growth in the General Fund also has been more moderate than the national average over the past 13 years (see graph).