The Republicans of My Youth Didn't Borrow to Balance Budgets

First of two pieces of why I miss the Repbulicans of my yout. 

There are times when I miss the old-fashioned Republicans of my youth, in the small-town America in which I grew up, about 40 miles over the Pennsylvania border in rural New York. Those mostly Protestant Republicans were the bankers, the insurance agents, the ministers, as well as many of the older doctors and lawyers. They didn’t like taxes. But they believed in the common good – in schools and parks and good sidewalks. In roads and bridges, in water system and sewers.

And most of all, they believed in fiscal and moral rectitude. The General Assembly, which is controlled by large majorities of Republicans, is about to pass a spending plan for the 2017-2018 budget without also passing a plan to raise the revenues to pay for it. What we are hearing about how they plan to pay for it makes me at least wish for the Republicans of my youth.

Part I: Stealing from the Future on Steroids

Pennsylvania has consistently, since 2010, and less consistently for many years before that, enacted budgets that, instead of being paid for by current revenues, borrowed from the future. The general fund budget was balanced by:

  • borrowing from other funds;
  • shifting spending from one fiscal year to the next;
  • booking federal revenues from future years in the current year;
  • over-estimating revenues;
  • under-estimating case-loads;
  • shifting spending from the General Fund to other funds;
  • shifting operating costs – the money it takes to provide services in any one year – to the capital budget, which is supposed to be used for projects, such as roads and bridges, that benefit the public over a longer period of time and that is paid for by selling bonds.
  • or by offering tax payers an amnesty on back taxes.

Every one of those fiscal techniques leaves the state in a deeper fiscal hole in subsequent years, either by adding to what had to be spent in the next year or by reducing the revenues available in future years.

Every one of these fiscal techniques give the public a false impression of the state of the public fisc, presenting an unbalanced budget as one that was balanced, and paid for by current revenues.

Every one of these fiscal techniques thus also mislead in giving citizens benefits that they are not being asked to pay for in taxes.

Every one of these fiscal techniques is technically unconstitutional in a state like Pennsylvanian that has a clear requirement that the operating budget be balanced.

This year, it appears that the General Assembly is going to steal from the future again, but in a far more dramatic way. Though the Governor opposes the plans and has called for a budget balanced with new recurring revenues, and though no legislative leader has so far stepped up to own the plan, the talk in Harrisburg is that the General Assembly will seek to balance the budget for the current year and part of next year with bonds backed by tobacco settlement funds. We are hearing that the bond issue may be between $1.5 and $2 billion dollars.

The justification for the bond issues will be the unanticipated decline in revenues during the current year, which led the fiscal 2016-2017 budget to be unbalanced. (Need I point out that the unbalanced budget was not unanticipated by us at the Pennsylvania Budget and Policy Center or by many other observers of state politics?)

This is a very bad idea, for multiple reasons.

First, it is stealing from the future on steroids. It will dedicate somewhere between $125 and $250 million a year, money which could and should be used to pay for operating expenses, to repaying the bonds.

Second, it violates the spirit, if not the law, that governs the Tobacco Settlement. The Tobacco Settlement was an agreement between states and tobacco companies to settle lawsuits claiming that by selling dangerous products and misleading the public about how harmful they are, the tobacco companies cost states large sums of money to pay for health care and related costs of smoking. Those funds are supposed to be used for health care – for programs that discourage smoking, and for related purposes. Balancing an unbalanced budget is not among them.

Third, it is a potentially dangerous idea. Tobacco settlement funds vary over time and, if fewer people smoke, could decline over time. That would require the state to dip further into those funds, or general fund revenues, to pay back the bonds. And some states that have adopted this technique in the past have gotten into deep trouble because their tobacco settlement bonds were structured in ways that required large balloon payments when the bonds came due. Don’t take our work on this – ProPublic and Marketplace have a wonderful piece that describes the dangers to states of selling bonds backed by Tobacco Settlement funds. We don’t know how Pennsylvania will structure the bonds – we don’t really know anything about how this idea will be implemented – but there is reason to be concerned.

And, fourth, it really is unconstitutional. But, hey, what’s a constitution among friends?

The old-fashioned Republicans of my youth would never have embraced this idea. They would have either cut spending or raised taxes. In a situation like the current one in Pennsylvania, where we have had six years of austere budgets funded in part by stealing from the future, they wouldn’t have pretended things were fine with the state budget when they are not. They would have looked the public in the eye and said, if you want the spending levels on schools, and human services, and roads and bridges in this budget, you have to pay some more. They probably wouldn’t have chosen the taxes we at PBPC would chose, which would take more from the rich and corporations than working people and the middle class. They would have asked everyone to kick in more.

They were made of sterner stuff than the Pennsylvania Republican of today.



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