Pennsylvania State Spending

By Nathan Benefield
Commonwealth Foundation
 PA Budget Overview
• Proposed: $27.3 billion General Fund Budget ($866
million less than 2011)
• Total Operating Budget: $63.6 billion ($3 billion less
than prior year)
– Includes Motor License Fund (highways), Lottery Fund,
Unemployment Compensation Fund, Federal Funds to state
• Capital Budget (not included in operating budget):
$1.8 billion in bond issues for projects
• Independent state agencies (not included in operating
budget) Turnpike Commission, PHEAA, etc.
 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)
 PA Taxes Add Up
• Pennsylvania has the 10th highest state and
local tax burden, up from 24th in 1990
• Pennsylvania taxpayers pay $4,190 per capita
in state and local taxes, 10.1% 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 2 ,9 4 7 ,1 4 1 ,0 0 0 $ 3 ,4 5 4
State $10,451,941,000 $841
State Agencies & Authorities $32,495,200,000 $2,614
Total Local $ 8 2 ,6 0 1 ,6 2 6 ,4 5 6 $ 6 ,6 4 4
School Districts $26,059,284,754 $2,096
County/Municipal/Twp/other $56,542,341,702 $4,548
Total $125,548,767,456 $10,098

Pennsylvania State, State Agencies & Authorities Debt

D ebtor D ebt Outstanding 2 0 0 2 D ebt Outstanding 2 0 1 0 Increase C hange
State $6,805,184,000 $10,451,941,000 $3,646,757,000 54%
State Agencies & Authorities $16,848,800,000 $32,495,200,000 $15,646,400,000 93%
Total State $ 2 3 ,6 5 3 ,9 8 4 ,0 0 0 $ 4 2 ,9 4 7 ,1 4 1 ,0 0 0 $ 1 9 ,2 9 3 ,1 5 7 ,0 0 0 82%
 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 1991-2010, PA Ranks
• 41st in Job Growth
– 11.8%, vs. 21.7% Nationally

• 45th in Population Growth

– 5.8%, vs. 22.9% Nationally

• 47th in Personal Income Growth

– 116%, vs. 151% 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 has been in top 5
“outbound state” for years – over 55% of
movers leaving
 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
 Budget Legislation
• General Fund Budget Bill
– Includes some other funds—Motor License Fund
and Lottery Fund—which are appropriated each
year rather than by formula
• Nonpreferred appropriation bills
– Part of General Fund, but not departments of
state
– 13 bills in 2010—e.g., Penn State, Pitt, PA Public
Utilities Commission
 Budget Legislation Continued
• Fiscal Code
– Tax credits, transfers between funds, dedicates taxes to
specific funds
• Tax Code
– Any tax increase/cut
• Capital Budget
– Two bills—one to authorize borrowing/bond issues, the
second to itemize capital projects eligible for funding
• Legislation to change programs done in separate
bills
 State Budget Shortfall
• Stimulus money runs out in 2011-12
− 2010-11 budget relied on $2.7 billion in General Fund
• Rainy Day fund and other one-time revenue funds
used up (used $150 million from other funds in 2011)
• Expected growth in Medicaid, Corrections, Employee
Compensation
• MCare Fund Lawsuit
− Commonwealth Court says state must pay back $800
million taken to balance budget
 2011 Budget Proposal
• Reduced spending in K-12 Education—primarily due to
loss of stimulus funding (spending from state tax dollars
actually increases)
• $800 million less in state aid
• Total public school spending doubled from 1995 to 2008, to
$26 billion
• State cuts represents 3% of total school spending
• Reduction of 50% for universities: Penn State, Pitt,
Temple, Lincoln, and State System
• Community Colleges, PHEAA grants to students relatively flat
 2011 Budget Proposal
• Public Welfare Increased by $600 million,
primarily in Medical Assistance (Medicaid)
– Due to loss of federal funds, lack of flexibility
under federal law to enact changes
• Corrections budget increased by $13 million
– Reforms were part of budget address, but not
result in savings in 2012
• No New Taxes
 Education Reforms
• School Choice
– Expansion of Educational Improvement Tax Credit and
Opportunity Scholarships (SB 1)
• Voter Referendum on Tax Hikes above Inflation
• Mandate relief for school districts
• Allow furloughs of public school employees
• Merit Pay for Teachers
• Encourage school districts to freeze employee pay
for a year ($400 million savings)
 Higher Education
• Goal is to move away from funding institutions to
funding students and results
• Institutional aid has not kept tuition low (e.g., Penn
State and Pitt more than double rates over 10 years)
• Four-year graduation rates at state schools 11% to
55%
• Some campuses losing students.
– Losing in competition to lower-cost alternatives including
community colleges and online classes
 Union Contracts
• Seventeen of 19 state union contracts up this year
• Salaries
– Corbett has suggested a wage freeze. Most union
employees have received raises of 3%, 3%, and 4%, plus
2% longevity increases last three years
• Health Care
– State workers pay 3% of salary. Private sector is based on
percentage of health care costs, averages 6% of pay.
• Union Dues deductions and PAC contributions
– State Government collects these
 Left to Do
• Address Welfare and Medicaid
• Privatization task force
• Corrections spending reforms
• Legislative reform
• State Pension Crisis
• Unemployment Compensation Deficit
 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
 CF Policy Reforms
• Transparency: put spending online (HB 15, SB
105)
• 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,
vouchers, and homeschooling cost much less
• Redefine 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
 CF Links
• CFPolicy.org/Budget
• CFPolicy.org/HigherEd
• CFPolicy.org/Pensions
 Nathan Benefield
Director of Policy Research
Commonwealth Foundation
225 State Street, Suite 302
Harrisburg, PA 17101
717-671-1901
[email protected]
CFPolicy.org