Serious Fiscal Challenge Ahead for Pennsylvania

Pennsylvania Budget Secretary Charles B. Zogby presented a stark forecast to the media during his mid-year briefing on Wednesday, December 18.

In fiscal year 2014-2015, the cost of state government will exceed revenue by $1.2-1.4 billion. In government terms that’s known as a “structural deficit,” and it means Governor Tom Corbett and the General Assembly will have to make some difficult decisions during next year’s state budget deliberations.

Gov. Corbett, a Republican, is in an especially tight predicament given that he campaigned for office with a pledge to hold the line on taxes.

Zogby said Corbett will address the challenge as he has in the past, by looking for efficiencies. The governor erased a $4.5 billion deficit his first year in office without raising taxes, while increasing state funding for basic education to a record level.

Zogby noted that since his boss took office in January 2011, administrative staff has declined by 2,788 positions, or 3.6 percent, for savings of $437 million.

For 2014-15, Gov. Corbett has instructed every state agency to maintain level funding and has told them no General Fund dollars will be used to reduce federal funds. Zogby pointed out that level funding equates to an 8 percent cut due to personnel cost increases for the typical agency operating budget.

“Before seeking a tax increase on Pennsylvania families we have to exhaust all other options,” Zogby said. He didn’t rule out freezing the scheduled phase-out of the state’s notoriously onerous Capital Stock and Franchise Tax.

The two biggest contributors to Pennsylvania’s fiscal woes are public pensions and health coverage for the poor, the costs of which will rise next year by $610 million and $600 million, respectively. Zogby said Corbett continues to work with the General Assembly on pension reform, which could alleviate the budget gap by as much as $200 million if new state hires are placed into a 401(k)-style retirement plan.

“We’ve been having a number of good conversations in both chambers [of the legislature],” Zogby said. “It’s a complicated issue.”

Gov. Corbett has also proposed expanding Medicaid eligibility, a long term budget-buster that would bring the state roughly $400 million a year in Obamacare funding from DC and reduce Pennsylvania’s budget shortfall in the near term.

Other costs of state government due to explode are corrections, which will grow by $140 million, and debt service, which will shoot up by $56 million.

Corbett will present a state budget proposal for fiscal year 2014-15 to a joint session of the General Assembly in early February.