PA Budget Discussion

Commonwealth Foundation
CommonwealthFoundation.org
Summary of Rendell’s Budget Proposal
• Total Spending: $66.4 B, $29.0 B General Fund
– GF relies on $2.8 billion in federal aid (assumes
additional $850 in Obama budget)
• Sales tax expansion & lower rate
• Reduces CNI from 9.99 to 8.99, imposes
combined reporting
• Natural gas tax and cigar/smokeless tobacco
tax
– New Taxes to Stimulus Transition Fund
 Taxpayer’s Budget
• Reduces taxes on working Pennsylvanians and job
creators.
– NO: Rendell Increase Tax Revenues
• Eliminates corporate welfare, WAMs/pork-barrel
projects, and special interests spending.
– NO: Rendell Increases Corporate Welfare Spending
• Balances the budget without accounting
gimmicks, shell games, or new debt.
– NO: Rendell Proposes $1.55 in New General Fund
Borrowing
 PA Taxes Add Up
• Pennsylvania has the 11th highest state and
local tax burden.
• Pennsylvania taxpayers pay $4,463 per capita
in state and local taxes, 10.2% of their income.
• Pennsylvania ranks 20th or higher in state and
local total taxes, spending, property taxes,
income taxes, corporate taxes, and debt per
capita.
 Spending Under Rendell
• General Fund spending increased by $9.1 billion, or
44.9% since 2003.
– Largest growth in Education, Public Welfare,
Transportation, and Treasury (Debt Payments)
$35,000,000 Pennsylvania General Fund Spending, 2002-03 to 2010-11
in Thousands of Dollars
$29,430,399
$30,000,000
44.9%
$25,000,000
$20,320,174
$20,000,000
46.3% 68.2%
$15,000,000
$10,302,270 $10,986,936
$10,000,000
$7,035,388 $6,529,896
$5,000,000

$0
K-12 Education & Support Public Welfare TOTAL
39 States Have Lower Tax Burden
 Sales Tax Reduction/Expansion
• 74 Exemptions Removed
– Products & services to be taxed:
• Accounting, Consulting, Custom Programming,
Advertising, Funeral Services, Non-Prescription Drugs,
Newspapers, Magazines, Personal Hygiene, Residential
Telephone, Coal, Helicopters, Flags, Dry Cleaning,
Candy and Gum, Financial Institution Fees, Gratuities
• $531 million in revenue for 2010-11
• Est. $900 million per year increase thereafter
 Business Taxes
• Corporate Net Income Tax reduced from 9.99
to 8.99 percent, imposes Mandatory Unitary
Combined Reporting, Single Sales Factor,
Eliminate NOL Cap
• Additional $66.6 million in FY 2010-11, $167
million/year thereafter
– Combined reporting would create a disincentive
for out of state companies to operate in
Pennsylvania.
 Natural Gas Tax
• Gov. Rendell proposes new tax on natural gas
extraction to generate $161 million in 2010-11
• Any tax should be tied to environmental costs,
not slush fund for state
• Severance tax should be deferred until
investors recoup their costs
– FL gives tax credits to small producers, TX reduced
its tax by 80% in hard-to-drill areas, OK delays its
tax until investments have been recovered, and LA
suspended its tax to incent new drilling.
 PA State Debt
Pennsylvania State and Local Government Debt
Debtor Debt O ut st anding As of: Per Capit a S ourc e
Total State $41,186,955,000 Dec. 2009 $3,313
State $8,690,755,000 Dec. 2009 $699 Governor's Executive Budget
State Agencies and Authorities $32,496,200,000 Dec. 2009 $2,614 Governor's Executive Budget
Total Local $74,787,069,000 $6,015
School Districts $24,324,397,208 FY 2007-08 $1,956 PA Dept. of Education
County/Municipal Debt (Est) $51,345,851,868 FY 2006-07 $4,130 US Census Bureau
Tot al $115, 974,024,000 $9,328

Pennsylvania State Government Debt

Debt O utstanding Debt Outstanding Perc ent

D ebtor 2002 2009 Inc rease Change
Total State $23,119,191,000 $41,186,955,000 $18,067,764,000 78%
State $6,270,391,000 $8,690,755,000 $2,420,364,000 39%
State Agencies and Authorities $16,848,800,000 $32,496,200,000 $15,647,400,000 93%

So urce: Go vernor's Executive B udget

 Unemployment Compensation
• Governor Rendell proposed increasing
Unemployment Compensation benefits to get
a one-time federal grant of $270 million
– This would cost Pennsylvania taxpayers another
$60 million each year in perpetuity
• Pennsylvania’s UC fund already owes $2 billion
in debt to the federal government.
– Pennsylvania ranks among the top 10 states in
highest unemployment taxes per employee
 Public Welfare Fraud Audits
• Medicaid Improper Payments
– Auditor General Wagner estimates $325 Million in errors
based on DPW error rate
– Based on error rate of audit - $1 Billion in fraud
• LIHEAP
– 18 people stealing more than $500,000 of LIHEAP funds
– Tens of millions in potential savings
• Special Allowance Program
– Labeled “rife with mismanagement and poor oversight.”
– Tens of Millions in Savings
 Pensions
• Rendell proposes “fresh starting” fund, with
graduated increases in contributions
– Only delays payment to future generations
• Must have reform
– Defined Contribution (e.g. 401-k plans) for all new
hires
– Prohibit pension obligation bonds, DROPs
– Reduce benefits where possible
 Spending Reforms
• Spending Transparency Database
– “Show me the spending.” HB 1880 passed PA
House
• Repeal Prevailing Wage Laws
– Billions in unnecessary cost to construction
• Privatize “Yellow Pages” Government
– Start with state liquor stores
• Corrections Reform
– Reduce costs without jeopardizing safety
 More Spending Reforms
• Eliminate Corporate Welfare
– PA is 2nd to Ohio - $700 million/year – in
“economic development” spending
– Economy lags US
• School Choice
– Educational Improvement Tax Credit, charter
schools, homeschooling cost much less
• Medicaid Reform
– Convert to vouchers to buy private coverage