New Castle News

John K. Manna

June 9, 2014

John K. Manna: Lagging revenues create budget woes

NEW CASTLE — When Tom Corbett took over as governor three years ago, Pennsylvania faced a budget deficit.

In the previous year he signed a no-tax pledge, and thus refused to raise taxes to close the budget hole. Corbett said the state had a spending problem, not a revenue problem, and, therefore, cut expenses.

Now, as the Legislature faces a June 30 deadline to adopt a new budget, guess what? The state is facing a deficit exceeding $1 billion, according to estimates.

The Department of Revenue has reported that the general fund revenue collection for May was $108 million less than anticipated. For the fiscal year-to-date, collections were $532.5 million below estimate.

While some spending obligations may be contributing to the deficit, there is no doubt that a decline in revenue is playing a significant role.

Still, there are some who ignore or don’t want to face up to the fact that revenues are lagging.

The Commonwealth Foundation, for instance, says Pennsylvania does not have a revenue problem. Revenue, it says, will grow by $4.9 billion over the next five years. Instead, the foundation claims the real problem is spending.

“Driven primarily by pensions and welfare, state spending will grow by an estimated $6.3 billion over that same time frame,” the foundation says.

Nobody on either side of the political aisle denies the fact that a major problem facing the state is dealing with an unfunded pension liability. But what does that or welfare spending have to do with revenue deficits?

It’s one thing to have spending exceed revenue in a budget. But this is a case of revenue falling well below what was anticipated.

For example, the state’s two biggest revenue sources — sales and personal income taxes — make up about $435 million of the revenue deficit so far.

Excessive spending — if there is any in a budget crafted by the Corbett administration — did not create shortfalls from the sales and income taxes or other revenue sources.

For the most part, the shortfalls were probably created by economic factors. Sales tax revenue is obviously related to how much people spend while income tax revenue is dependent on the size of incomes and the level of employment.

Republicans and Democrats can argue all they want about the appropriate levels of spending, but it doesn’t answer why the two major revenue sources are lagging behind. And once they have the answer, what’s the solution?

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