Budget shields taxpayers, but challenges remain

A contentious budget season has officially ended after Governor Corbett signed a $29 billion appropriations bill into law. But is it fiscally responsible? And what’s holding up reforms on the major issues, like pension reform, facing taxpayers across the state?

Let’s start with the positive. The new budget does not include any broad-based tax increases. With Pennsylvanians already laboring under the 10th highest tax burden in the country, lawmakers decided not to increase this burden, allowing taxpayers to keep more of what they earn. That’s in spite of a push from government union leaders to increase taxes by $1 billion.

In addition to holding the line on taxes, this budget also limited spending growth. In fact, the last four budgets have held down General Fund spending to an average growth rate of less than 1 percent. In contrast, spending increased at double the rate of inflation over the previous eight years and has jumped by an average of 6.2 percent per year since 1970.

Advertisement

By keeping spending growth reasonably low, Pennsylvanians, many of whom are already on tight budgets, will not be called upon to pay more for fiscally irresponsible policies.

In addition to hurting taxpayers’ wallets, excessive government spending also stifles job growth. As government spends more money on programs that are often inefficient or redundant, it leaves the private sector with fewer resources for investment, making it much more difficult to keep their current workforce employed, increase wages, or hire new employees.

To keep spending growth down, lawmakers cut funding for a variety of wasteful economic development programs. These programs, which pick winners and losers in the marketplace, are not an effective way to stimulate job growth as their proponents tout. Of course, further cuts could be made to ensure that taxpayers are not funding programs that only benefit a select few special interests.

While General Fund spending growth has been restrained, both education spending and Pennsylvania’s total operating budget, which nears $72 billion, are at all-time highs.

Pennsylvania continues to spend more than it collects in revenue, as it has for seven years now. This is possible through the shifting of dollars from other funds and the use of one-time revenue sources. Unfortunately, such a course is simply not sustainable, and the state’s fiscal problems will only worsen without permanent solutions.

Public pensions, one of the main drivers of Pennsylvania’s budget issues, are a great example. Pensions promise to eat up new state revenue and are already impacting school districts’ budgets. Local officials must now choose between cutting services or raising property taxes to meet pension obligations. The difference in what taxpayers are paying for pensions now and what we will be in a few short years is nearly $1,000 per household. For school districts, the increase equals the salaries of one-third of their teachers.

Despite this undeniable pension threat — representing $50 billion in debt — the state Legislature has been unable enact meaningful reform. Why? Governor Corbett recently identified the special interests that have fought tax-saving reform every step of the way: public sector unions.

The Pennsylvania State Education Association (PSEA), among other government unions, has used taxpayer-collected union dues to mislead the public and their own members in an effort to retain the status quo. For years, they denied that there is a pension problem, supported underfunding pensions for their own members, and lobbied against multiple attempts at reform.

The PSEA even declared victory in a mass email shortly after the latest pension bill was stymied in the House this month. This may be a victory for government union leaders, but not for the taxpayers footing the bill. It was no victory for public employees either. Without pension changes, they — and Pennsylvania taxpayers — could see a Detroit-style fiscal future, where city retirees were recently asked to take a voluntary 4.5 percent reduction in pension benefits.

Before next year’s budget, comprehensive changes to the pension system need to be made, along with other reforms to control spending while reining in public sector union power through paycheck protection. If action is taken soon, we can right the ship and put Pennsylvania on a path to prosperity.

Bob Dick is a policy analyst at the Commonwealth Foundation (CommonwealthFoundation.org), Pennsylvania’s free market think tank.