State of distress
The inexcusable failure to fund the state budget
This is no way to run a state government. Pennsylvania’s Legislature has failed to produce a revenue package to support the 2017-18 budget, so more than three months after the fiscal year began, a frustrated Gov. Tom Wolf has announced plans to borrow $1.25 billion to help keep the (more responsible) wheels of state government turning.
Mr. Wolf, a Democrat, proposed the borrowing because the GOP-controlled Legislature has failed at what is arguably the most important task it has each year, and House Republicans are the key culprits at this point. If lawmakers envision a contentious budget process, they should start earlier than usual with the aim of meeting the June 30 deadline. This time, the House and Senate passed a spending plan of nearly $32 billion on June 30, but they could not agree on the mix of revenues needed to cover those costs.
More than three months on, they still can’t agree, hence Mr. Wolf’s plan to borrow $1.25 billion against liquor revenues. Borrowing may be a way to meet pressing financial obligations but it also gives breathing room to legislators who don’t deserve it. In addition, it costs money for a state that doesn’t have enough of it — that’s what the standoff is all about — and it comes after a Standard & Poor’s credit downgrade that could affect interest rates.
Put another way, the budget stalemate may prompt a borrowing, to be repaid with interest because lenders don’t work for free, and the state may have to pay unusually high interest on that loan because the aforementioned stalemate also precipitated a credit downgrade. Here’s another concern: If Mr. Wolf encumbers liquor revenues, how might that affect a long-needed privatization of the state’s liquor and wine monopoly? The state needs to be out of the alcoholic beverages business, not linked more tightly to it.
About a month into the fiscal year, the Senate passed a revenue package that included increased taxes on consumers’ utility bills and a severance tax on fracking, among other funding sources. When House Republicans couldn’t agree on a revenue package, the chamber broke for the summer, squandering valuable time when members should have stayed in Harrisburg getting the job done.
It’s now fall, and the job still isn’t done. Last week, House Republicans couldn’t drum up enough support for a new 5 percent hotel tax. Just as well — the addition would have made the levy on hotel stays in Pittsburgh and Philadelphia the highest in the nation. Leaders of the hospitality industry were caught blindsided by a familiar attempt to impose a tax that politicians think won’t be felt by locals. The legislators’ tone-deaf proposal to extend the sales tax to commercial storage facilities — do they understand that Pittsburgh and Philadelphia are vying for Amazon’s second headquarters? — thankfully died on the vine.
Meanwhile, they’re still solidly against a severance tax on fracking, which shows fealty to a vocal lobbying sector of the oil and gas industry. A reasonable tax on drilling would not chase the serious players away. A majority of Pennsylvania citizens would support a commonsense tax on the natural resource.
After talks fell apart, Mr. Wolf announced plans for the borrowing. But that is not a foregone conclusion. The Liquor Control Board would have to give its approval, and it’s unclear whether state Treasurer Joe Torsella would have to give his consent. In the past, Mr. Torsella has expressed concern about using a loan as life support.
Mr. Wolf is not the first to propose a loan; the Senate included one in its revenue package, but that was part of an overall financial strategy. A stopgap loan, especially one that affects the LCB’s future, would be an undesirable course.
The better approach is for lawmakers to lock themselves in a room and stay there until they have an agreement. There’s no reason to kick this can further down the road.