Pennsylvania State Spending &
Fiscal Crunch:
What Now
By Nathan Benefield
Commonwealth Foundation
PA Budget Overview
• Enacted: $28.04 billion General Fund
Budget
• Total Operating Budget: Approximate $66
billion
• Capital Budget: $1.8 billion in bond issues
for projects
• Independent state agencies: Turnpike
Commission, PHEAA, etc.
Thomas Jefferson:
The natural progress of things is for liberty to
yield and government to gain ground.
James Madison:
I believe there are more instances of the
abridgement of freedom of the people by
gradual and silent encroachments by those in
power than by violent and sudden
usurpations.
Spending Under Rendell
• General Fund spending increased by $8.1 billion, or
40% since 2003
– Largest growth in Education, Public Welfare,
Transportation, and Treasury (Debt Payments)
2010 PA Budget Deal Facts
• Relies on $850 million in federal Medicaid money
(FMAP)
– Congress passed legislation giving PA $600 million—opening
up a $250 million gap
• $66 million in WAMs that had been eliminated in
2009
• $600 million in RACP Funding – Debt Financed
Corporate Welfare
– Includes $10 million each for Arlen Specter Library, Jack
Murtha Center
State Budget Shortfall
• Stimulus money runs out in 2011-12
− 2010-11 budget relies on $2.7 billion
• Rainy Day fund and other funds used up (used $150
million from other funds in 2010)
• MCare Fund Lawsuit
− Commonwealth Court says state must pay back $800
million taken to balance last year’s budget
• I-80 tolling rejection
− Rendell planned to spend $450 million/year from that
State Government Pensions
• Increase in taxpayer contributions to SERS and
PSERS
– HB 2497 delays “spike”—but taxpayer contributions
to rise from $500 million in 2010 to $6 billion in 2015,
$10 billion by 2030
• Causes
– 2001 pension benefits increase and 2002 COLA
(passed when Republicans controlled both Houses
and Governor’s office)
– 2001-02 and 2008-09 investment losses (currently
assume 8% annual return)
– 2003 & 2010 legislation to delay payments on liability
Unemployment Compensation
• Pennsylvania’s UC fund owes $3 billion in debt
to the federal government
– Pennsylvania ranks among the top 10 states in
highest unemployment taxes per employee
– Current proposal to increase unemployment
compensation eligibility to get a one-time federal
grant of $270 million. Would cost Pennsylvania
taxpayers another $60 million each year in
perpetuity
PA Taxes Add Up
• Pennsylvania has the 11th highest state and
local tax burden, up from 24th in 1990
• Pennsylvania taxpayers pay $4,463 per capita
in state and local taxes, 10.2% of their income
• Pennsylvania ranks 20th or higher in state and
local total taxes, spending, property taxes,
income taxes, corporate taxes, and debt per
capita
PA State Debt
Pennsylvania State & Local Government Debt
D ebtor D ebt Outstanding Per C apita
Total State $ 4 1 ,1 8 6 ,9 5 5 ,0 0 0 $ 3 ,3 1 3
State $8,690,755,000 $699
State Agencies & Authorities $32,496,200,000 $2,614
Total Local $ 7 8 ,7 7 3 ,2 2 3 ,8 5 2 $ 6 ,3 3 6
School Districts $26,059,284,754 $2,096
County/Municipal/Twp/other $52,713,939,098 $4,240
Total $119,960,178,852 $9,649
Pennsylvania State, State Agencies & Authorities Debt
D ebtor D ebt Outstanding 2 0 0 2 D ebt Outstanding 2 0 0 9 Increase C hange
State $6,270,391,000 $8,690,755,000 $2,420,364,000 39%
State Agencies & Authorities $16,848,800,000 $32,496,200,000 $15,647,400,000 93%
Total State $ 2 3 ,1 1 9 ,1 9 1 ,0 0 0 $ 4 1 ,1 8 6 ,9 5 5 ,0 0 0 $ 1 8 ,0 6 7 ,7 6 4 ,0 0 0 78%
State Paying Firms to Come to
Pennsylvania
• “Economic Development” Subsidies 2009-10
– Ohio – $860,594,397
– Pennsylvania - $754,651,000
– California - $734,225,000
• Recent Examples
– Harley Davidson
– Sport Stadiums
– Film Tax Credit
– “Green” Jobs
From 1991-2009, PA Ranks
• 43rd in Job Growth
– 11.7%, vs. 22.8% Nationally
• 47th in Population Growth
– 5.5%, vs. 22.0% Nationally
• 48th in Personal Income Growth
– 107%, vs. 141% Nationally
Residents “Movin’ Out” of PA
Census Data:
56,000 net residents lost in inter-state migration
from 2000-2009
250,000 lost from 1990-1999
IRS
PA lost a net 8,791 taxpayers to other states in 2008
Net loss of $431 million
United Van Lines: PA is second highest
outbound state – 58% of movers leaving
Allied Van Lines: PA ranks third in outbound
migration – 60% leaving
Rankings of PA Economy
Forbes: "The Best States for Business" - 41st (1 is
best)
CEO Magazine: Best States to do Business – 32nd (1 is
best)
American Legislative Exchange Council: State
Economic Competitiveness Index - 46th on Economic
Performance; 43nd for Economic Outlook (1 is best)
Pacific Research Institute: Index of Economic
Freedom - 46th (1 is best)
The Beacon Hill Institute: State Economic
Competitiveness - 39th (1 is best)
A Bit of Good News
• States Bordering PA are in Worse Shape
– New York, New Jersey, and Ohio – Among Highest
Tax States, Worst in Economic Growth, and Losing
Residents to Pennsylvania
– West Virginia and Maryland – Near PA in Tax and
Economic Rankings
– Only Delaware has Significantly Lower Tax Burden,
Stronger Economic Growth
CF Policy Reforms
• Transparency: put spending online (HB 1880,
SB 105); each house passed a version
• Spending caps: limit the growth of spending to
inflation + population growth
• Eliminate Corporate Welfare
• Privatize government-run liquor stores &
more
• Initiative and Referendum
More Spending Reforms
• School Choice
– Educational Improvement Tax Credit, charter
schools, and homeschooling cost much less
• Repeal prevailing wage laws that increase the
cost of government construction by 30%
• Corrections reform: costs of prison/prison
construction is skyrocketing
• Medicaid reform: eliminate fraud ($1 billion),
convert to voucher for private insurance
What can Citizens Do?
• 10 – Minute Citizen
– Get informed, then get active
– Contact lawmakers, write letters to the editor
– Most important: Be missionaries
– Some tools at: Cfpolicy.com/citizen
• Build institutions of the movement
– Those that rely on government spending are
organized—well-funded, involved in elections
(starting at local level), policy action (“ground troops”
Citizens Can Have Major Impact
• Have killed legislation this past year, just by letting
lawmakers know we are aware
– Calls/emails/visits; Mention lawmakers by name in
letters to the editors/blogs
– Lawmakers know taxpayers outnumber tax eaters, but
aren’t convince we’ll take action
• May to June 2010 – state budget season
– Every special interest group that relies on state spending
will be out in full force
– Need to let them know we are watching too
CF inks
• CFPolicy.org/Budget
• CFPolicy.org/Pensions
• CFPolicy.org/Citizen
Nathan Benefield
Director of Policy Research
Commonwealth Foundation
225 State Street, Suite 302
Harrisburg, PA 17101
717-671-1901
[email protected]CFPolicy.org
