Statement from Sharon Ward on 2009-10 Budget Agreement

HARRISBURG, PA (September 11, 2009) – The 2009-10 budget agreement announced by legislative leaders today postpones Pennsylvania’s budget problems rather than solves them, Pennsylvania Budget and Policy Center Director Sharon Ward said.

Legislative leaders with the Senate Republican, Senate Democratic and House Democratic caucuses unveiled the $27.945 billion budget framework this morning. The framework identifies $1.2 billion in new revenue and $2.1 billion in one-time revenue sources for the 2009-10 Fiscal Year.

Ward issued the following statement on the agreement:

“Lawmakers have built this budget agreement on a shaky foundation. It is premised on overly optimistic revenue projections and relies too heavily on one-time revenue sources. Lawmakers are essentially digging for coins under the sofa cushion to balance this budget.

“Overly optimistic revenue projections are setting Pennsylvania up for long-term budget problems and structural deficits in future years. With mounting job losses and lagging corporate profits, Pennsylvania is still in the throes of the recession. Rosy revenue projections will likely lead to a mid-year budget gap and another budget crisis next year.

“This plan also overlooks potential revenue sources that will be needed to preserve essential services in future years, such as a levy on cigars and smokeless tobacco and the elimination of the sales tax vendor discount. It passes on opportunities to make good policy changes to Pennsylvania’s tax system, such as closing corporate tax loopholes and enacting a severance tax on natural gas production.

“Even more troubling, this budget includes a tax break for a small group of well-connected businesses. That tax break was the price demanded by some budget negotiators to agree to a temporary delay in the Capital Stock and Franchise Tax phase-out. The phase-out of that tax will resume in two years, but the companion tax giveaway for a select few businesses will live on, further reducing revenue in future years.

“Questions remain about other identified sources of revenue. The success of a tax amnesty program depends on whether the budget increases Department of Revenue staff. There are also some questions around revenue estimates for legalizing table games and taxing small games of chance.

“On the spending side, the picture is still murky. Questions are emerging, including how federal stimulus money is being allocated for education. Are state funds for basic education being cut and back-filled with stimulus dollars? If so, what happens when stimulus funds dry up in two years? And were other education programs cut to shift additional funding to basic education?

“Cuts in state services hurt the Pennsylvania economy. The Keystone Research Center has estimated that a $1 billion cut in state spending would result in 20,000 more lost Pennsylvania jobs than a $1 billion increase in taxes.

“Pennsylvanians who rely on a range of public services – seniors, school children, working parents, and people with disabilities – have seen the impact of a loss of state funding during this prolonged budget stalemate. We are deeply concerned that this plan does not assure those Pennsylvanians are out of the woods now or in the future.

“Lawmakers should consider additional revenue options to ensure that essential services are fully funded and that the state is not setting itself up for a long-term structural deficit.”