Missed op­por­tu­ni­ties in Pa. bud­get

The Community Connection - - OPINION - Nathan Bene­field is vice pres­i­dent and chief op­er­at­ing of­fi­cers for the Com­mon­wealth Foun­da­tion (Com­mon­wealthFoun­da­tion. org), Penn­syl­va­nia’s freemar­ket think tank.

For most of Gov. Tom Wolf’s ad­min­is­tra­tion, the state bud­get process has been con­tentious at best and down­right hos­tile at worst. His first three years fea­tured months-long im­passes, ve­toes, and school fund­ing be­ing held hostage. Two un­bal­anced bud­gets drew a law­suit that’s still mak­ing its way through the courts.

But this year was a sharp con­trast. Wolf signed a state bud­get for the first time — more than a week early. Gone was the usual po­lit­i­cal squab­bling, as leg­is­la­tors and the gover­nor smiled their way through the process.

Can you tell it’s an elec­tion year?

Now that the dust has set­tled and law­mak­ers have traded Harrisburg for the cam­paign trail, it’s time to as­sess the im­pact of this kum­baya bud­get deal.

Good News

The fi­nal bud­get in­cluded no new taxes on work­ing fam­i­lies, and that’s rea­son to cel­e­brate. This de­spite Wolf’s push for $250 mil­lion in new taxes on nat­u­ral gas on top of the fees and taxes drillers al­ready pay — which would lead to higher heat­ing costs and lost jobs.

Penn­syl­va­nia fam­i­lies saw an­other big win as the bud­get raised the cap on the Ed­u­ca­tional Im­prove­ment Tax Credit — which al­lows busi­nesses to re­di­rect some of their tax obli­ga­tions to fund pri­vate school schol­ar­ships — by $25 mil­lion. More than 50,000 stu­dents were de­nied ed­u­ca­tion op­por­tu­nity un­der cur­rent tax credit schol­ar­ship caps.

While this in­crease is one of the largest in the pro­gram’s his­tory, tens of thou­sands of stu- dents will re­main trapped in the low-per­form­ing schools. In Fe­bru­ary, Wolf said he wants to, “make sure that your zip code doesn’t de­ter­mine what kind of ed­u­ca­tion you can get.” In a boost to eco­nomic growth prospects, pol­i­cy­mak­ers also fixed how the state tax code han­dles de­pre­ci­a­tion. The law over­turns a De­part­ment of Rev­enue rul­ing dis­al­low­ing the de­duc­tion of cap­i­tal busi­ness ex­penses. Thank­fully, law­mak­ers re­al­ized this rul­ing, a re­ac­tion to fed­eral tax cuts, made it next to im­pos­si­ble for Penn­syl­va­nia to com­pete for man­u­fac­tur­ing in­vest­ment and jobs.

Bad News

Un­for­tu­nately, the bud­get deal did lit­tle to con­trol spend­ing. Last year’s bor­row­ing al­lowed law­mak­ers to put off many tough de­ci­sions. Plus, the bud­get re­lied on sev­eral hun­dred mil­lion dol­lars in one-time rev­enues and con­cealed ad­di­tional spend­ing in off-book funds called the “shadow bud­get.”

Mean­while, cost driv­ers such as hu­man ser­vices in­creased faster than the state’s econ­omy. On top of that, debt pay­ments on more than $1 bil­lion in bor­row­ing be­gin next year, cost­ing nearly $200 mil­lion an­nu­ally.

All told, this makes for a dif­fi­cult bud­get year in 2019. If law­mak­ers come ask­ing for a multi­bil­lion tax hike next year, you’ll know why.

Missed Op­por­tu­ni­ties

To truly put our state’s fi­nances back on solid ground, spend­ing lim­its are a must. The Tax­payer Pro­tec­tion Act would al­low for man­age­able spend­ing in­creases — pre­vent­ing over- spend­ing in boom years and the re­sult­ing need for tax hikes dur­ing re­ces­sions. Un­for­tu­nately, the Se­nate missed the op­por­tu­nity to act on a con­sti­tu­tional amend­ment, passed by the House, which would es­tab­lish the TPA.

Spend­ing lim­its aren’t the only way to im­prove Penn­syl­va­nia’s out­look.

Work re­quire­ments for ben­e­fit pro­grams like Med­i­caid and food stamps are a proven so­lu­tion to poverty. HB 2138 and HB 1659 rep­re­sent such re­forms and would add hun­dreds of thou­sands of Penn­syl­va­ni­ans to the work­force, greatly im­prov­ing their eco­nomic well-be­ing while help­ing to fill more than 200,000 open jobs in the state.

Sadly, these bills, along with other sub­stan­tive re­forms to the bud­get process, were also left on the ta­ble.

Go­ing for­ward, law­mak­ers must re­sist the temp­ta­tion to craft a patch­work bud­get. In­stead, they should pur­sue a long-term vi­sion for eco­nomic growth.

While this bud­get doesn’t raise taxes and in­cludes some sig­nif­i­cant wins for fam­i­lies, too many missed op­por­tu­ni­ties means it won’t be re­mem­bered as the year Harrisburg fi­nally got its act to­gether.

Our rep­re­sen­ta­tives have a chance for a course cor­rec­tion next year—if we de­mand they make it.

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