Pennsylvania Deficit Watch: April 2010

The Pennsylvania Department of Revenue reports that through the end of March, state General Fund revenues are $719 million below estimate for the 2009-10 fiscal year.

  • Tax collections have been below estimate all nine months of the fiscal year to date. March represents the first time collections exceeded the prior year’s since October, which included $1.8 billion in transfers from other funds and one-time revenue sources.
  • The 2009-10 budget (passed in October 2009) included tax increases and assumed slight revenue growth.
  • In his budget address in February, Gov. Rendell, confirmed Commonwealth Foundation predictions that his budget spent too much–projecting the shortfall will reach $525 million by the end of fiscal year 2009-10, which has obviously been exceed with the March shortfall.
Historical General Fund Budget Shortfalls: Projected vs. Actual Revenues (Monthly)
(in millions of dollars)
2008-09 2009-10
Actual Difference Percent Actual Difference Percent
July $1,746.20 ($0.08) 0.00% $1,650.89 ($2.11) -0.13%
August $1,668.90 ($117.50) -6.58% $1,605.50 ($19.90) -1.22%
September $2,343.70 ($163.80) -6.53% $2,050.36 ($118.64) -5.47%
October* $1,649.00 ($283.40) -14.67% $3,519.06 ($19.54) -0.55%
November $1,640.90 ($93.10) -5.37% $1,596.92 ($56.78) -3.43%
December $2,109.00 ($156.63) -6.91% $1,983.60 ($37.20) -1.84%
January $2,173.80 ($261.74) -10.75% $2,075.90 ($120.20) -5.47%
February $1,502.20 ($196.95) -11.59% $1,489.60 ($102.30) -6.43%
March $3,873.30 ($336.09) -7.98% $3,947.00 ($243.00) -5.80%
April $2,952.00 ($942.50) -24.20%
May $1,613.30 ($287.50) -15.13%
June $2,300.00 ($415.00) -15.29%
FY Total $25,572.30 ($3,254.29) -11.29% $19,964.70 ($719.66) -3.48%
* October 2009-10 includes $1.8 billion in non-tax revenue, largely from transfers from other funds

Gov. Rendell’s plan to address the current year shortfall included in his proposed state budget include:

  • Use of the remaining General Fund balance ($354 million after October transfer of $1.8 billion from other funds)
  • $135 million in reductions from the enacted 2009-10 PA budget
  • Prior to releasing the official March collections, the Rendell administration put out a statement expressing optimism they could still balance the PA state budget without a tax hikes, this is based on:
    • An additional $275 million from the federal government for Medicare Part D reimbursement
    • $50 million due to lower than expected refunds from tax returns
    • Better collection months, relative to estimate, in the remaining months

However, last year, despite a $3.2 billion shortfall, and a mid-year pledge to make budgetary cuts, the governor and General Assembly failed to reduce spending accordingly.

Gov. Rendell’s proposed 2010-11 Pennsylvania state budget acknowledged the long-term fiscal imbalance – namely that the current budget exhausted all the state’s one-time revenue sources, such as the “Rainy Day Fund;” the federal stimulus funding disappears after the 2010-11 fiscal year; and the state faces dramatically higher state pension contributions beginning in 2012-13. However, Rendell’s budget calls for more of the same:

  • A $1.3 billion increase in General Fund spending.
  • Reliance on an addition $850 million in federal Medicaid funding, which has yet to pass Congress.
  • Delaying pension payments, pushing higher costs onto future generations.
  • New Taxes:
    • Sales tax expansion to 74 currently untaxed items & lower rate – generating $531 million in additional revenue next year and $866 million the following year.
    • Reduces CNI from 9.99 to 8.99, imposes combined reporting – generating $66 million next year and $167 million the following year.
    • New tax on natural gas extraction – $161 million in 2010-11 and $260 million thereafter.
    • New cigar/smokeless tobacco tax – $42 million per year.
    • Elimination of the vendor discount for sales tax collection – $75 million per year.

With Pennsylvania facing another budget revenue shortfall, now is the time to reduce spending to match tax revenue.

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For more on the PA State Budget, visit CommonwealthFoundation.org/budget

The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.