Pa. faces $2B budget deficit as COVID-19 delays taxes, throttles business

By: - May 1, 2020 3:02 pm

Two months out from the deadline to pass a new state budget, Pennsylvania now faces a $2.2 billion deficit amid the COVID-19 pandemic.

The deficit comes after April revenues, projected to be $4.4 billion, were only half of what the state expected, according to the state Department of Revenue

Revenue Secretary Dan Hassell cautioned in a statement that the large deficit — about 6 percent of this year’s spending — could mostly be a result of extending the state’s tax deadline to July 15. 

The new deadline matches a federal adjustment made in reaction to the coronavirus-related economic interruptions.

The department estimated that up to $1.7 billion of the $2.2 billion shortfall could be made up later in the year once Pennsylvanians tax returns start rolling into Harrisburg.

That is an important fact to keep in mind when analyzing the fiscal impact of the pandemic on our revenue collections,” Hassell said.

Pa.’s 2020 budget could be up to $1.8 billion short because of COVID-19 business closings

The revenue numbers are the first hint of budget woes that lawmakers in both parties have expected since the beginning of the business closures and stay at home orders to slow the spread of COVID-19.

John O’Brien, spokesperson for House Appropriations Committee Chairman Stan Saylor, R-York, agreed with the assessment.

“We don’t have an ability really to see what’s going to be the natural loss of revenue and what will be shifted to July,” O’Brien told the Capital-Star.

An April report from the Independent Fiscal Office, a nonpartisan public office that analyzes state policy, projected that the state could lose up to $4 billion because of those closures by the end of the next fiscal year — including up to $1.8 billion this fiscal year alone.

Pennsylvania’s fiscal years run from July to June. Wolf, a Democrat, and the Republican-controlled General Assembly must agree and pass a new budget by June 30 or risk a politically messy standoff.

Such standoffs were the norm in Wolf’s first term, but have waned over the past two years due to strong state revenues.

This year, Wolf offered a $36 billion spending blueprint — a 4 percent increase from last year — in his February budget address. Republicans decried the increase, which was mostly concentrated in human services and education.

As part of the federal government’s coronavirus stimulus measures, Pennsylvania is expected to receive up to $5 billion in aid. That money, however, cannot be used to patch budget holes but instead to cover unexpected costs from the public health emergency.

A new round of spending specifically designed to fill in state finances has been suggested, including from a national association of governors from both red and blue states. But such a measure has not yet received traction in Washington D.C.

Speaking to the press Friday, Wolf said that he “will be looking at working with the legislature to develop” next year’s budget “with the understanding that the revenues are certainly down and we’ll continue to be down.”

To contain this year’s costs, the state has already taken some action, such as temporarily freezing pay for 9,000 public employees.

Capitol observers have suggested that the odd fiscal times could mean the state passes a temporary spending measure until revenues stabilize before pursuing a full budget later this year.

“Right now all options are on the table and will continue to be on the table,” O’Brien said

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.