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Corbett Admin’s internal budgetary guidelines warn of cost increases, declining federal dollars

By   /   August 23, 2012  /   No Comments

By Eric Boehm | PA Independent

HARRISBURG – An annual set of budgetary guidelines issued by the Corbett Administration to all state agencies and departments this month spells out the fiscal challenges facing Pennsylvania and warns that government programs cannot count on the state to replace declining federal dollars.

Though the 2012-13 fiscal year is less than two months old, the recently published administrative circular is already looking ahead to expected cost increases in next year’s budget, forcing many parts of state government to tighten their belts even further. The document warns that budget planning for 2013-14 should be predicated on the fact that Pennsylvania’s economy is still in a period of recovery from the “Great Recession.”

Gov. Tom Corbett signed the current budget less than two months ago, but the administration is already looking ahead to 2013-14.

“Continued increases in pension obligations and other cost drivers, such as Medical Assistance, prison costs and debt service obligations, are projected to consume an even greater share of the commonwealth’s budget next year,” the guide warns.

Pension costs are projected to climb by about $600 million next year, from $1.6 billion in the current budget to more than $2.2 billion. That’s part of an expected $1.7 billion increase in mandatory spending for 2013-14 on pensions, debt service, welfare payments and corrections costs, according to projections from the state’s Independent Fiscal Office, which is similar to the federal Congressional Budget Office.

In public comments, Gov. Tom Corbett has likened those automatic cost-drivers to a “Pac-Man” eating an ever-larger portion of the state budget and squeezing out discretionary spending.

Due to those mandatory increases, the administration is telling agencies not to assume funding increases for the 2013-14 fiscal year, and advising them to evaluate current programs and recommend changes to reduce costs and increase efficiency.

The Department of Revenue is developing revenue estimates for the 2013-14 budget year.

Nathan Benefield, director of research for the Commonwealth Foundation, a free market think tank here, said the budget guidelines were an acknowledgement of a “four-alarm fire” in the state budget.

“It’s an acknowledgement that those costs are going to result in either an increase in taxes or better prioritizing of spending,” Benefield said.

When it comes to Medicaid, in particular, the state should be pushing for more flexibility from the federal government to implement funding reforms before the program drives Pennsylvania into bankruptcy, he said.

Sharon Ward, executive director of Pennsylvania Budget and Policy Center, a liberal think tank here, said the tone set by the budget guide was no surprise.

“This administration has a track record of proposing budgets that are more fiscally conservative than necessary, then coming back later to find the money is really there,” Ward said.

She said the expected increases in Medicaid costs could be lessened if the economy picks up, and warned against giving away potential revenue in the form of tax credits, a policy the Corbett Administration has pursued on several fronts.

Despite some positive signs in the first half of the year, the state economy seems to have stumbled during the summer, as unemployment in Pennsylvania climbed from 7.4 percent in May to 7.9 percent in July.

In January, the Independent Fiscal Office  projected 1.6 percent growth in the state’s economy during 2012 and 2.4 percent in 2013.

It estimated unemployment in Pennsylvania would remain above 7 percent into 2014.

The Corbett Administration budget circular tells key agency and department heads that Corbett’s first two budgets were intended to rein in spending and streamline governmental operations, but the next step “focuses our limited resources on the future and builds a brighter tomorrow.”

All state agencies are told to submit 2013-14 funding requests at levels that do not exceed their current budgets.

The budget rider also addresses expected decreases in federal dollars for some parts of the state budget.

Agencies that lose federal funding should not request additional state aid to make up the difference, but instead should “adjust program operations and priorities” to reflect the new, lower level of funding, the guide states.

Benefield said that policy made sense because excess money to be used in those instances doesn’t exist, but Ward argued the administration should not use a blanket approach to determining what areas get funding to offset federal cuts.

Contact Eric at [email protected] and follow @PAIndependent on Twitter