Report: Pa.’s budget future ‘almost paradoxical’ | Tuesday Morning Coffee

Bulging surpluses could give way to huge deficits if policymakers fail to take action, a new analysis warns

By: - February 21, 2023 7:10 am

Gov. Josh Shapiro speaks at the Pennsylvania Capitol in Harrisburg on Tuesday, Jan. 31, 2023. (Commonwealth Media Services)

So here’s the good news for Democratic Gov. Josh Shapiro as he gets ready to deliver his first budget proposal to a joint session of the state House and Senate next month:

The state likely will be sitting on a projected budget surplus of more than $8 billion by the time it closes the books on the 2022-23 budget year on June 30, according to a new report.

And if you factor in the state’s Rainy Day Fund savings account, that total approaches something like $13 billion, the data show.

Now the bad news: It’s probably not going to last. In fact, if current trends hold, the commonwealth will be facing cumulative budget deficits totaling nearly $13 billion by fiscal 2027-28, that same research shows.

The analysis by the Pennsylvania Budget and Policy Center, a progressive think-tank in Harrisburg, suggests a number of causes for that seemingly abrupt shift in the state’s financial fortunes.

Deficit Analysis
(Pa. Budget & Policy Center)

Among them, the end of federal stimulus money that fattened the coffers of Pennsylvania and other states during the peak of the COVID-19 pandemic, the flat-funding of scores of state programs in the 2020-21 budget year, and the hole that will be punched in state revenues because of a reduction to Pennsylvania’s corporate tax rate.

“The fiscal status of Pennsylvania is almost paradoxical. We have a huge surplus of more than $13 billion. Yet we are likely to have recurring budget deficits starting next year and critical needs for additional state spending, especially for full and fair funding of K-12 education,” the think-tank’s director, Marc Stier, said in an email.

“The huge surplus creates a temptation for politicians to avoid making hard decisions,” Stier continued. “But it also provides an opportunity to use the surplus and modest addition to revenues now to meet the needs of the state over the long term.”

Students, families, and education advocates join Children First and Education Voters of Pennsylvania to host a rally on the Capitol steps to “ring the bells of justice,” and call for equitable funding for Pennsylvania public schools. The rally, which took place Friday, Nov. 12, 2021, occurred on the first day of the landmark trial that could change how Pennsylvania funds its 500 school districts.
(Capital-Star photo by Marley Parish)

The ‘full and fair funding for public education,’ Stier mentioned above is a reference to the multi-billion dollar dilemma that a Pennsylvania Commonwealth Court judge dropped in policymakers’ collective laps earlier this month when she declared the state’s school funding system unconstitutional.

In a 786-page order, President Judge Renée Cohn Jubelirer said the “options for reform are virtually limitless,” but she drew the line at offering a policy prescription, leaving that to the legislative and executive branches to figure out for themselves.

The cost of leveling the playing field will be towering — to say the least. And the matter is still likely to end up before the state Supreme Court before all is said and done, the Capital-Star previously reported.

(Getty Images)

Faced with those demands, the state can’t dodge the challenge, the analysis suggests.

In fact, “a cold-eyed look at Pennsylvania’s fiscal state shows us that to both deal with long-term structural deficits and to meet the needs of Pennsylvanians, the state will at some point have to raise revenues,” the report’s authors wrote.

Translation: A tax increase. But not for everyone.

“To do that without hurting either the state economy or Pennsylvanians who are struggling economically, additional revenues should come from those most able to afford it, the wealthiest among us and the multi-state and multi-national corporations who, despite the recent reforms, continue to pay little or nothing in state corporate taxes,” the report’s authors wrote.

(Pa. Budget & Policy Center)

And that means making those the most able to afford it shoulder an increased share of the burden, analysts concluded.

“Pennsylvania continues to have one of the most unfair tax systems in the country,” the report’s authors wrote. “… Low-income Pennsylvanians pay state and local taxes at more than double the tax rate as a share of their income (14%) than the richest 1% of income-earners in Pennsylvania (6%). This is not just terribly unfair—but it is the fundamental reason our taxes do not bring in sufficient revenues to pay for the services that the people of Pennsylvanian want and need.”

The work that lies ahead will be a “test of statesmanship,” which “distinguishes political leaders who aim for greatness from those who just seek to hold office.”

And “while the state’s budget paradox may tempt our political leaders to avoid our long-term budget issues, it can also enable them to address those problems over a number of years without overly burdening Pennsylvania taxpayers,” the report’s authors wrote.

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John L. Micek

A three-decade veteran of the news business, John L. Micek is the Pennsylvania Capital-Star's former Editor-in-Chief.