Breaking Down The Budget: The Political Path To PA’s Structural Deficit

Jun 29, 2017

Many still trace Pennsylvania's current revenue dilemmas back to the 2008 housing market crash, and the political decisions made as a result.
Credit Matt Rourke / AP Photo

State lawmakers have made no secret of the fact that next fiscal year’s state budget, which is due Friday, will be a hard one to enact.

The commonwealth’s contending with a roughly $3 billion structural deficit, and its reserves are tapped out. It’s also facing skyrocketing pension and human services costs, and for the last year, it’s been relying on a line of credit from the Pennsylvania Treasury to pay off immediate expenses.

So how did we get here?

Many of these fiscal issues can be traced back to the 2008 housing market crash.

The governor at the time was Ed Rendell, a two-term Philadelphia Democrat. In his first budget address during the Great Recession, in February 2009, Rendell acknowledged the gravity of the situation.

“The FY 2009-2010 budget,” he told the General Assembly, “presents challenges the likes of which Pennsylvania and the nation have not seen since the Great Depression.”

Those challenges lived up to expectations.

The 2009-10 spending plan ultimately wasn’t passed until October. It was 101 days over-deadline, making Pennsylvania the last state to pass a budget that year.

If you ask Rendell about that period now, he more or less brushes it off.

“They were all tough budgets,” he said.

But financial analysts, like Mark Ryan, with the state Independent Fiscal Office, insist those years were particularly bad, and that they left a thorny legacy.

“So many of our current problems at least originated in that time-period,” Ryan said.

Muhlenberg College political analyst Chris Borick noted, those woes weren’t just financial. They cut to the core of what it means to govern.

“It is more adversarial than in the past,” Borick said of state politics today. “Those working relationships within the legislature across party lines are different than they were even a decade ago.”

When Rendell and a split-party legislature finally passed the 2009 spending plan, it leaned heavily on $2.6 billion in federal stimulus money—as did most states that year.

It also drained the commonwealth’s $750 million rainy day fund and moved around various other cash pools to plug gaps. The plan cut spending by about $400 million, but raised state money for education by 300 million—something Rendell recalls with pride.

The budget was technically balanced.

But looking back at the fiscal plans passed under Rendell post-crash, and then under his successor, Republican Tom Corbett, Ryan said one constant stands out.

“Generally policy-makers have used temporary measures such as existing fund balances and short-term expenditure deferrals to address ongoing budget shortfalls,” he said. “However, a long-term imbalance is largely unaffected by temporary measures.”

Basically, for nearly a decade the commonwealth hasn’t really been making the deals needed to balance a budget. Instead, it has resorted to means generally referred to as “gimmicks.” Knowingly underfunding programs, for instance. Or borrowing money from one department to fill holes in another.

But with little new revenue—such as tax hikes—or meaningful cuts, a deficit has been growing all the while.

Rendell noted, he had some excuses for not using recurring revenues in his last two budgets—it was a severe recession, after all.

“Stimulus in Pennsylvania worked perfectly, because in the two years of the recession it allowed us to not make major cuts in anything,” he said.

But when the federal dollars dwindled, so did that short-lived financial security.

By the time Rendell left office in 2011, there was about a billion dollar surplus in the commonwealth's general fund. But there was also a large deficit that Rendell’s successor, the conservative Tom Corbett, inherited.

Corbett’s longtime spokesman, Michael Barley, noted that when the Republican entered office, he had to contend with a $4.2 billion structural shortfall.

“One of the largest deficits our state has ever faced,” Barley said. “[Corbett] made a promise to the people of Pennsylvania he wasn’t going to raise their taxes, and deal with the fiscal situation he inherited.”

As a result, throughout Corbett’s administration, the name of the game was sharp spending cuts.

Education took the biggest hits when, after the stimulus money ran out, Corbett opted not to maintain the funding levels the system had seen under Rendell.

Ryan notes that those moves weren’t quite enough to balance Pennsylvania's lack of new revenue under Corbett. That imbalance, coupled with a still-struggling economy, forced the then-governor and GOP lawmakers to use budgeting tricks that amounted to just moving the money around some more.

And that can’t go on forever, Ryan said.

“The rainy-day fund has been utilized, and various one-time revenue sources have been used,” he explained. “Many of the available fixes have been used to address past budgets.”

Barley doesn’t deny using some unsustainable revenues, but said Corbett’s budget methods were warranted.

“Look, I mean I believe we used funds that were available and there were one-time costs, but the governor made a pledge that he wasn’t going to come to the taxpayers for broad-based tax increases and he kept that promise,” he said.

That wasn’t enough to keep him in office, however.

Corbett’s austerity spending proved unpopular—even within his own party. York County businessman Tom Wolf, a Democrat, ousted him in 2014, winning on a promise to restore funding to state programs and tax the natural gas industry more heavily.

But Wolf soon became bogged down by the Capitol’s partisan divide.

His first budget proposal was balanced on broad-based hikes to sales and personal income taxes. And as political analyst Chris Borick notes, the Republican-controlled House and Senate rejected it overwhelmingly.

“We saw what happened to that,” Borick said. “It went nowhere, and actually probably derailed the early part of his administration.”

That budget didn’t get passed until nine months past its deadline—a deadlock that damaged Wolf’s relationship with the legislature and sank his poll numbers.

According to Borick, the fiscal plan that did pass—and the next one as well—didn’t do much to pay down the state’s debts.

“Yeah the state’s done a good job of keeping itself open for business over the last few budget cycles. But in terms of a long-term plan, we’re still wanting,” he said.

Negotiations on Wolf’s third budget are now in what lawmakers hope are the final stages.

But so far, talks are following a script similar to what's been done for almost a decade.