What the PA Credit Downgrade Means

The decision by Standard & Poor’s to downgrade Pennsylvania’s credit rating should come as no surprise. There was ample warning by S&P and other credit agencies, as well as by political observers including us at PBPC, that this would be the result of the continuing failure of Republicans in the General Assembly, and especially Speaker Turzai and his followers in the House, to raise sufficient recurring revenues to close state’s long-term structural deficit. Instead, year after year, budgets passed with Republican majorities have been balanced with one-year revenues, phantom funds, and other budgetary gimmicks.
 
This year, even as the sword of a credit downgrade was hanging over the heads of the taxpayers of the state who will bear the burden of the increased taxes at every level of government from school districts and municipalities to counties to the entire state, Speaker Turzai ignored the danger. Even when a bipartisan majority in the Senate passed a tax code bill with recurring revenues that would remove the sword, Speaker Turzai refused to let the House consider it. The House spent weeks out of town. And when it returned, Speaker Turzai again ignored the warnings and allowed a group of back-benchers to drag the House through a search for fantasy 'surplus funds' that those with deep knowledge of the budget insisted did not exist. And then, the House passed a plan that not only raided special funds, but included other phantom revenues from liquor and gaming legislation that has not been, and most likely will not be enacted, phantom revenues from unspecified lapsed funds, and phantom revenues from a proposal that was rejected by the courts last year. Republican Senate President Pro Tempore Joe Scarnati summed it up best when he said, 'This is not governing; this is an embarrassment.'
 
This credit down grade need not, and should not have happened. If the General Assembly had enacted Governor Wolf’s proposals in February 2017 to raise $1 billion from a severance tax on natural gas, corporate tax reform, and sales taxes on business-to-business purchases — none of which would place a severe burden on working and middle class Pennsylvanians — there would be no credit downgrade. If the General Assembly had enacted the modest personal income tax increase Governor Wolf proposed in February 2017, not only would the budget be balanced this year, but there would be almost no carryover deficit from last year.
 
No doubt some Republican legislators and some advocates will say that the real cause of the budget deficit is overspending. And it is true that there is always two sides to a budget deficit. But spending has declined as share of state GDP for the last five years, and the main reason for our structural deficit is cuts to corporate taxes and our upside-down tax system. Moreover, every budget in the last five years has been passed with a majority of Republican votes — sometimes with Democratic support, sometimes not. No matter what the right-wing advocates say, a majority of Republican members of the General Assembly is simply unwilling to reduce state spending to the level necessary to balance the budget without new taxes — indeed they have taken credit for increased spending for education and human services.  And the reason for their reluctance to cut spending is quite obvious — the public will not stand for it because investing in our communities is what's best for Pennsylvania.
 
So what we have seen in the last five years is that right-wing legislators send press releases objecting to state spending totals, and refuse to fund the budget with recurring revenues, but never actually name, let alone enact the cuts necessary to balance the budget. While Governor Wolf produces a budget plan that does actually reduce spending, they produce lists of fantastical proposals and claims of 'waste, fraud, and abuse' that no one in their own caucuses even take seriously and that are never enacted despite overwhelming majorities in both houses of the General Assembly.
 
Unfortunately for the citizens of the state, the sword has fallen today and we will all pay the price for the fundamentally irresponsible and dishonest approach to state budgeting taken by Speaker Turzai and his followers. Perhaps the clanging of the sword will awaken the many responsible Republican legislators in both the House and Senate and lead them to demand serious action to resolve the budget crisis quickly and reasonably. If they do so with dispatch, we can avoid further credit downgrades, and perhaps even see the state’s credit rating repaired before too long.

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