Massive Pa. deficit projected

Two items from the BCCT, an article and an editorial. Perhaps we should be asking the Emperor for a special state of the school district's finances report at the next business meeting.

Massive Pa. deficit projected
Two senior legislators foresee a tax hike.
By MARC LEVY\ASSOCIATED PRESS

HARRISBURG — The deteriorating economy and rising costs for such bigticket items as health care and prisons is leading the state government on a path to a massive deficit that will require a tax increase to erase, two senior state legislators said Monday.

The two state senators, Democrat Vincent J. Fumo of Philadelphia and Republican Gibson E. Armstrong of Lancaster County, said the deficit they are projecting will be larger than any one in the past three decades.

They also said that it will be difficult, if not impossible, to make up the difference by cutting costs alone, either because legislators are unwilling to take money out of programs and services or because state government is already squeezed.

“I honestly don’t know where you cut,” Fumo told reporters after a Senate Appropriations Committee hearing on the state budget. “We’re down to the bone.”

Armstrong, the committee chairman, added: “I don’t know of any program up here that we can get going the other way.”

Legislative action will have to wait until next spring, after a new legislature is seated in January. The last scheduled voting days in the fall legislative session are this week, not nearly enough time to make substantial changes, they said.

In July, Gov. Ed Rendell signed the $28.3 billion budget for the 2008-09 fiscal year that ends June 30. Revenue collections through Sept. 30 were behind the official expectation by $281 million, or 4.7 percent, leaving the state with its biggest first-quarter shortfall in at least three decades.

That 4.7 percent shortfall projected over the entire July-June fiscal year would tear a $1.3 billion hole in the budget.

Worse, the economy is deteriorating far more than Fumo, Armstrong or the state’s economic forecasters anticipated just three months ago. Another problem is that the budget relies on at least $500 million in one-time cash freed up by postponing payments and tapping surpluses, putting that much more distance between rising costs and dropping revenues.

The free fall of the stock market also means the state treasury is losing money on its investments, instead of contributing hundreds of millions to the state’s bank account, Armstrong said. An expected spike in pension costs in 2012 could be much bigger, too, he said.

If spending is not cut and taxes not increased, the state will be left with a deficit of at least $2.5 billion when the next fiscal year ends in June 2010, Fumo said.

Armstrong said that assessment is optimistic.

Rendell’s top budget adviser, Mary Soderberg, appeared before the committee, but said it is too early to say how the governor will respond beyond the steps he already took, or how the wider economic malaise will continue to affect the state’s revenue collections.

Citing the weakening economy, Rendell last month said he would hold back $200 million in reserve by freezing hiring, banning out-of-state travel by employees and ordering state agency heads to find places to cut.

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A crisis here, too
The state faces a serious budget shortfall and painful decisions are just ahead about taxes and spending.

While the federal government goes merrily on its way, continuing to spend money it doesn’t have, the state of Pennsylvania enjoys no such luxury. By law, the commonwealth’s budget must be balanced. The economy, however, so far is not cooperating in fiscal 2008-09.

For the first quarter, July-September, state revenue collection is short of official estimates by 4.7 percent, or some $281 million. Projected over the entire fiscal year, such a budget gap would total $1.3 billion. While accurately predicting deficits can be as much of a guessing game as predicting surpluses, it’s probably safe to assume there will be no economic up-tick in the immediate future that will bring the budget back into balance.

So state officials are faced with these choices: Dip into reserves; cut programs; raise taxes; or some combination of all three.

Pennsylvania is fortunate to be sitting on a substantial budget reserve. There’s more than $700 million in the so-called “rainy day” fund. As one lawmaker noted, it is raining, so prudent tapping of the reserves is appropriate. That’s what the fund is for.

But that’s only part of the solution. Raising taxes, never a popular option, would seem to be a nonstarter at this particular time of national financial crisis.

That leaves cutting programs. There’s no stomach for that, either, but Harrisburg may be forced to go in that direction. Cuts can be painful. Enforced fiscal discipline can be a good thing, however.

We’ve been talking to state House candidates over the past few weeks, and they seem to be of a single mind that budget cuts are possible, not only by scaling back programs but by trimming non-essential discretionary spending and eliminating waste. The cost of running the government itself might be a good place to start the chopping process.

Last month, Gov. Rendell froze hiring and banned out-of-state travel among other expense cuts. He probably can and should do more. For its part, the Legislature should resolve to run a tighter fiscal ship, with spending limited to essential functions and more accountability for what is spent.

Naturally, every program that receives state funding will plead its case for continued support and warn of dire consequences if cuts are implemented. Some programs, including those that involve public health and safety, have a legitimate argument. Every program is beneficial in some way to some constituent group. But not every program is necessary, and there are many that could get by with reduced funding, at least temporarily. Government likes to think it can be all things to all people, but it cannot — even in good economic times. And these certainly are not good economic times.

The silver lining in the present cloud could be that state government is forced to be more responsible when it comes to spending our money.