This article by Chris Freind is being republished with his permission.
Pennsylvania Governor Tom Corbett’s “day of reckoning” budget, containing substantial cuts and rolling back spending to 2008 levels, may well pass the GOP-dominated legislature without major changes.
But just because the state constitution requires a balanced budget doesn’t mean it always happens that way.
Take the budgets of the last two years, which former Governor Ed Rendell championed and were passed by a Democratic House and Republican Senate.
In 2009, $400 million in revenue was budgeted from the tolling of Interstate 80. Except that the tolling never happened. Put that in the debit column.
And last year, the budget was passed on federal Medicaid dollars that hadn’t yet been appropriated (and ended up being $255 million less than budgeted) and a Rendell-promised Marcellus Shale gas tax that would generate hundreds of millions — but which never materialized.
And the forecast general tax revenue was over a billion dollars short.
But that’s not all. The legislature and Rendell raided MCARE in 2009 — the fund to offset Pennsylvania doctors’ skyrocketing medical malpractice insurance rates — to the tune of $800 million. A Commonwealth Court ordered the money repaid, but the Rendell Administration appealed. Odds are the state Supreme Court will uphold that decision. The hole deepens.
So despite some cuts last fall, we’re still looking at a $3 billion revenue gap which, by the way, is not factored into the acknowledged $4 billion deficit. The fact that no one wants to talk about this is not surprising, since it’s not in the interest of the politicians, and most of the media doesn’t do its homework.
Let’s put this type of maneuvering into perspective. What would happen if a publicly traded pharmaceutical company, in an attempt to placate Wall Street, added billions to its books to reflect a medicine it hadn’t yet produced? People would go to jail.
But in Harrisburg, it’s called Business As Usual. Instead of solving the real problem, the state’s leaders have resorted to what they do best: bury their heads in the sand.
Just because you pretend a problem doesn’t exist, though, doesn’t mean it’s not there. The can is being kicked, yet again, down the road. But the road is quickly coming to an end.
Overall, the budget rates a B-, assuming that you believe the numbers — and that’s a big assumption. There is nothing particularly special about this budget, since spending cuts were imminent after the federal stimulus money dried up. It gets the job done at a basic level, and Pennsylvania will continue to limp along.
While there were clearly some elements in the Governor’s address that could help Pennsylvania re-invent itself into an economic and industrial powerhouse, the speech lacked the breakout vision that is essential in selling those ideas to the public. No one expects Corbett to have the jazz of New Jersey Governor Chris Christie, but Pennsylvanians need to be inspired if their state is to forge ahead.
A prime example would have been explaining why the Marcellus Shale holds such so much promise for Pennsylvania’s future, from the thousands of sustainable jobs it creates (and the accompanying houses bought and income spent in-state), to untold millions in tax revenue, to the manufacturing boom it can foster by providing extremely cheap energy.
Corbett could have showcased manufacturing companies that drill wells on-site and, as a result, now realize incredible cost savings for what is always the largest line item: energy. This directly translates into business expansion, more hiring, and a way to finally compete with China.
Or he could have decreed that from this moment, all future state vehicles will run on natural gas, currently about one-eighth the cost of gasoline, with zero emissions. This would be a win-win by increasing demand for natural gas — and if that doesn’t happen soon, the industry will start packing up by next year — and saving taxpayer money. And what a boom to the entire economy if we had an alternative to $4/gallon gasoline.
But that didn’t happen. So all the public knows is what they see in the headlines: “We’re Getting Drilled,” “How Corbett Fracked Pennsylvania’s Middle Class,” and “Big Budget Cuts? We Smell Gas,” along with editorials about how much the industry contributed to the Governor’s campaign.
Reality is now setting in; what a Republican candidate said on the campaign trail in October 2010 — a landslide election year for the GOP — was easy. Now the rubber meets road.
The question isn’t if Tom Corbett can get this budget passed, but whether can he sell it to the people, and at what cost to his agenda and party, particularly since 2012 will prove a better year for the Democrats. His deliberate strategy to remain silent for four months has resulted in lost opportunities to earn much-needed political capital needed to sell his budget cuts to the public.
To reverse that, he must now barnstorm across the state, a la Christie, attending everything from natural gas forums, explaining why an extraction tax will hurt the state, to school board meetings, where he can push his idea of teacher salary concessions. Time will tell whether he will effectively be that messenger.
There were a number of common sense proposals that, based on the legislature’s make-up, should come to fruition: the reduced spending and no new taxes; legal reform targeting frivolous lawsuits (the Fair Share Act); school choice in which competition and accountability would be injected into the educational system; the phase out of the Capital Stock and Franchise Tax, the elimination of pork-barrel walking around money (WAMs); and calls for pay freezes and give-backs by public workers.
Likewise, there are a number of problem areas:
-Eliminating 1,500 jobs is a good start, but since reports state that 1,000 of them aren’t filled, the real number is only 500 jobs, which isn’t a huge budgetary factor. So why the gimmick?
-The assumption that revenue will grow by 4.7 percent, while not impossible, is hugely optimistic. Inflated revenue has been a hallmark of past budgets to make the numbers work on paper. In reality, they came up short, adding to rolling deficits. Without substantial growth in Pennsylvania, that rosy figure will prove unattainable.
-Calling for cuts to higher education by 50 percent, while increasing welfare spending substantially, will also be an extremely hard sell, for two reasons. First, many will frame the issue simply as education versus welfare, and which provides the better return on investment. Second, state-related schools, such as Temple, Penn State, Pitt and Lincoln, have immensely powerful lobbying operations, including parents and students, who will deluge their elected officials in opposition. Look for that figure to drop substantially, to be made up somewhere else.
-One item that is noticeably absent from the budget is the privatization of liquor stores, which is curious since it was the one issue on which the majority of Pennsylvanians agree. Instead, a blue-ribbon commission was formed to study privatization. Here’s a newsflash. Voters elect politicians to solve the problems, not authorize more meaningless commissions. A major chip in the fight has been shelved, shifting the momentum to the unions which support the status quo.
-Other areas left out but still mandatory for a healthy business climate were the reduction of the corporate net income tax (second-highest in nation) and the looming pension issues, which may be addressed as public sector union contracts are negotiated this
spring. The Governor has taken the elimination of collective bargaining off the table though, a concession that simply didn’t have to be made this early. They received nothing in return for that move. Another head-scratcher.
-There are also several inconsistencies that the Governor must address. While he advocated salary freezes and reductions, he raised the salaries of all his executive staff, and the budget of the Lieutenant Governor’s office increased 30 percent. And despite de-funding the adultBasic program, which provided healthcare to working poor on the premise that there was no more money, he found a way to bail out the Philadelphia Shipyard to build ships with no buyers.
Saying all the right things about fiscal discipline, free enterprise and removing government from where it doesn’t belong rings a bit hollow in light of some recent Corbett Administration decisions.
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The Governor used the analogy of reviving an apple tree to explain why the cuts are necessary, stating that if the tree isn’t tended, it will grow into a tangle of limbs and bear no fruit. The pruning (hard cutting) was needed so the tree could once again bear fruit.
In keeping with the theme, here’s a piece of advice: if you’re afraid of getting a rotten apple, don’t go to the barrel. Get it off the tree.
The Governor is right: we need to revive the tree. But as of now, too much of this budget is coming from the same old barrel.