Anyone who ever received a bad report card while in school can probably identify with the way the state of Pennsylvania’s government must feel right now.
An analysis of all 50 states’ budgeting practices by the nonprofit Volcker Alliance found that a variety of worrisome trends and questionable practices make Pennsylvania deserving of poor grades compared to most other states.
“Covering fiscal 2016 through 2018, the study assesses and grades all 50 states in five critical budgeting areas: budget forecasting, budget maneuvers, legacy costs, reserve funds, and budget transparency,” Truth and Integrity in State Budgeting said in a news release announcing the report. “States received grades of A to D-minus, the lowest possible mark, for each category. Each grade reflects the state’s three-year average for each critical budgeting area.”
Pennsylvania was the only state in the nation branded with that dreaded D-minus in the category of “budget maneuvers,” which judges states on their practice of using one-time revenue and other temporary measures to try to get balance in the state budget.
“One budget maneuver that contributed to Pennsylvania’s low grade was a decision to use $1.5 billion in proceeds from the issuance of bonds secured by the 1998 Tobacco Master Settlement Agreement — a legal settlement between cigarette producers and 46 states, the District of Columbia, and several territories — to help offset a negative general fund balance at the end of 2017,” the report states.
The report notes that using one-time revenues to balance the budget just leaves a state facing the same problem for the next fiscal year, while recurring revenues can fill a gap for years on end. And on the other side of the coin, deferring payment for expenses can create massive budget crunches down the road.
One area where Pennsylvania has long been an offender in deferring its obligations is in pensions, and the Volcker Alliance report issued states a grade for that section alone. In this, Pennsylvania found itself with a “D” grade, which is actually a slight improvement from the D-minus grade it earned for previous years. Only in the last three years, as the economy has improved, has Pennsylvania begun to make its required contributions to public employee pension funds.
“The many years that Pennsylvania skimped on its contributions left it with a funding level of 55.3 percent in its most recent actuarial valuation, down from 127 percent in 2000,” the report states.
Pennsylvania garnered a “C” grade when it comes to reserve funds, down from a “B” two years ago. The report says Pennsylvania follows best practices when it comes to its disbursement and replenishment policies for reserve funds, but it hasn’t maintained a positive reserve fund balance or tied its reserves to revenue volatility.
“General fund reserves, which may be easier to tap than rainy day funds, also play a role in fiscal stability,” the report states. “Forty-one states had positive general fund balances on the first day of fiscal 2018. The only states without money in a rainy day fund and with a minimal or negative general fund balance at the beginning of fiscal 2018 were Illinois and Pennsylvania.”
Pennsylvania did much better in budget transparency and forecasting, earning “B” grades in both of those areas.
“Pennsylvania and New Jersey are considering adopting consensus revenue forecasts to replace the current ones, which are produced solely by the executive branch,” the report notes.