Mid-Year Budget Update - 2013-14 on Track but Prepare for a Rough 2014-15 Budget

This morning, Pennsylvania Budget Secretary Charles Zogby gave the Corbett Administration's take on the 2013-14 state budget at mid-year. While the current year budget seems manageable (revenues and expenditures coming in on target so far), Secretary Zogby confirmed what the IFO had warned last month — that 2014-15 is about $870 million out of balance. General fund revenues are expected to grow by $830 million in the next fiscal year, but that isn't enough to pay for $1.7 billion in mandated spending increases. If any extra funding is added to basic education or any other non-mandated program, the gap grows larger. This leaves a hole in the budget that needs to be filled before passage.

Secretary Zogby indicated that agencies have been cutting program funding and other administrative costs to account for higher personnel costs to help deal with the imbalance.

Significantly, the Secretary indicated that all revenue sources, other than broad-based taxes, would be on the table.

One thing that was notably left out was the impact of corporate tax cuts on revenue growth. As we explain in a report released today, had corporate taxes increased at the same rate as other General Fund taxes, there would be little to no shortfall based on the IFO's five-year projections.

Despite lower unemployment (still higher than the national average) and an expanding national economy, revenue growth is inching forward more slowly than spending growth. This is not a surprise, as corporate tax breaks have cut away so much of the state's tax base that their collections are expected to decrease in coming years. This is the first time in many years that this has happened in a growing economy. So much for the Laffer/trickle-down effect.

Going into 2014-15, we need, more than ever, a balanced approach that looks at tax increases, as well as cost-savings to balance the budget. One-time revenues are likely to be proposed to get the state through the next election cycle, but these merely kick the can of our structural deficit down the road to the next General Assembly.


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