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Pennsylvania’s budget mess is going from bad to worse

By   /   February 11, 2016  /   No Comments

Things are bad and getting worse in Pennsylvania.

Gov. Tom Wolf delivered his second budget address on Tuesday, and it was met with immediate opposition from many members of the Republican-controlled General Assembly.  At first glance, it appears another long budget battle — the 2015-16 budget wasn’t finalized until Dec. 30 — is coming.

While everyone is fixated on the short-term political and budgetary fights in the state, Pennsylvania’s long-term fiscal problems are only getting worse.  As I wrote in a piece that appeared in Wednesday’s edition of the Pittsburgh Tribune-Review, “last year’s lengthy budget battle did nothing to address a much bigger problem than partisanship: a long-term structural imbalance in the state budget that is getting worse with each passing year.”

Here’s a closer look at the numbers outlined in that article, which were provided by the Independent Fiscal Office, a nonpartisan number-crunching agency that is Pennsylvania’s version of the Congressional Budget Office.

Based on current policy, Pennsylvania will be facing a $2.4 billion budget shortfall by the 2016-17 budget year.

Yes, these are just projections. They are based on current policies and therefore are subject to change.

So I wanted to see how much they had been changing.

The IFO does one of these projections every year, so it’s possible to get a sense for whether the recent shifts in state policy have changed Pennsylvania’s longer-term trajectory.

You can probably guess where this is going: It’s getting worse all the time.

Data provided by Independent Fiscal Office; graphic by Eric Boehm

GETTING WORSE AND WORSE: Based on current policy, Pennsylvania will be facing a $2.4 billion budget shortfall by the 2016-17 budget year.  Just two years ago, the shortfall in 2016-17 was projected to be $1.7 billion.  Other future years show a similar trend of growing deficits, meaning current policies are making the problems worse, not better.

When the IFO released its 2013 projections (the blue bars on the chart above), it thought the state would have a $1.7 billion deficit by the 2016-17 budget year. In the 2014 edition (the orange bars), the IFO projected a $2.1 billion deficit in 2016-17. For the 2015 projections (the silver bars), it projects a $2.4 billion shortfall for that year.

You can see that the projections for other future years are getting progressively worse, as well.

The projected deficit in 2017-18 has grown from $2 billion in the IFO’s 2013 report to $2.4 billion in last year’s report and $2.6 billion this year.

For 2018-19, the numbers climbed from $2.1 billion in 2013 to $2.5 billion in 2014 to $2.7 billion in the newly released projections.

As I wrote in the Tribune-Review, there are lots of reasons for this long-term deficit. Pension costs are growing at 4 percent annually, on average, while the state is expected to spend more in future years on things like Medicaid (thanks to Pennsylvania’s aging population and the expansion in eligibility triggered by Wolf and the Affordable Care Act).  Tax revenue is not expected to keep pace with those costs.

Wolf spent a good deal of his budget address on Tuesday talking about the long-term imbalance in Pennsylvania’s budget.

“This deficit isn’t just a cloud hanging over Pennsylvania’s long-term future. It is a time bomb, ticking away, right now, even as I speak,” he said.

His solutions include higher taxes, lots of them, including a retroactive increase in the state’s income tax.  Most of those ideas are probably nonstarters with a conservative Republican majority in charge of the General Assembly.

But there’s no doubt that Wolf is right about the state heading in the wrong direction. Most voters agree with that assessment, even if they haven’t read the IFO’s reports.

Politicians have every incentive to think short-term, of course. They have to worry about getting re-elected in 2016 or 2018, and they have to find a way to make the state budget balance each and every year.

Lawmakers aren’t going to solve those serious budgetary problems in the next few years. Pension costs, for example, are largely locked-in and cannot be reduced in the short term (except by pushing them off, which only makes them worse).

Even if it’s unreasonable to expect that this year’s budget will eliminate that long-term structural imbalance, reducing it should absolutely be one of the goals.