Looming deficits prompt warnings, bromides in Harrisburg

Harrisburg – While last week’s election brought the prospect for change at the national level, this week in Pennsylvania brought more of the same in terms of legislative leadership and, more importantly, the state’s fiscal outlook.

The negative news concerning the current and future state of Pennsylvania’s budget began Tuesday when the Independent Fiscal Office provided its five-year financial outlook that noted budget deficits are only likely to increase – from $1.7 billion for FY 2017-2018 to $3 billion in FY 2021-2022.

“While recently enacted revenue enhancements and expenditure policies had a meaningful impact on the FY 2016-17 budget, the impact diminishes over time; therefore, the long-term fiscal outlook is largely unchanged from last year," IFO director Matthew Knittel said in releasing the report.

In the current fiscal year, despite several revenue enhancements passed as part of the budget, Pennsylvania could face a $500 million shortfall – with a possible additional $400 million deficit anticipated in the Department of Human Services that could force the Legislature’s hand in providing supplemental funding.

Further complicating matters was the announcement Wednesday that the Wolf administration has drawn an additional $600 million from a $2.5 billion line of credit extended by the Treasury to the General Fund to ensure it does not dip into a negative balance.

Total borrowing from the line of credit after Wednesday’s draw-down has reached $2.2 billion after draw-downs of $1.2 billion in September and $400 million in August.

The loan, issued at an interest rate of .75 percent, must be paid back to the Treasury by June 30, 2017.

In response to the latest use of the credit line, State Treasurer Timothy Reese had harsh words regarding Pennsylvania’s fiscal health.

“No family or business can expect to continually borrow money just to pay the bills – the state is no different,” he said, adding the Independent Fiscal Office “once again reported that Pennsylvania faces a long-term structural deficit, and it is clear that the situation will only get worse if nothing is done.”

Auditor General Eugene DePasquale, in discussing his second-term priorities Thursday, piled on to the negative commentary.

“It is clearer now than when I was sworn-in in the first term, how challenged our financial situation in this state is, with very little wiggle room to deal with it,” he said.

Echoing remarks made by the Independent Fiscal Office, DePasquale opined the root of Pennsylvania’s fiscal troubles lies in the fact that costs are outpacing anticipated revenues, which is likely due to an aging population and declining available workforce.

“We have to come to grips with the demographic changes in our state in finding appropriate revenue sources that meet that changing demographic,” he said.

Having laid out the issue, then, it’s prudent to look at how a Legislature with an increased Republican majority and an all-Democrat executive branch will come to terms to find an effective solution for what’s ailing the commonwealth’s bottom line.

In the short term, that does not look like an easy path.

After electing leadership teams for the coming state legislative session that look largely like the ones currently in place, House Republicans said they are still not interested in looking at broad-based tax increases to fill deficit holes.

“I don’t think, given the results of the past election, that folks are all that interested in broad-based tax increases,” said House Majority Leader Dave Reed (R-Indiana), after being unanimously re-elected to his post for another session.

Additionally, Reed argued, changes may be in the offing that could alter the face of state government as we know it.

“There’s a challenge ahead of us and we’re going to have to find a way to balance the budget not just this year, but next year,” he stated. “(T)hat may take a broader conversation about what we expect government to look like in Pennsylvania, but we’ll meet with the governor to work through those particular solutions,” he said.

According to House Republican leaders, that discussion might include how to finally achieve meaningful pension reform, additional wine and liquor privatization, and gaming expansion.

DePasquale argued that while implementing something like a personal income tax increase might do more harm than good in the current environment, lawmakers could close the deficit gap by taking more seriously his findings of waste, fraud and abuse of taxpayer dollars.

“Our audits identified more than $320 million in misspent and potentially recoverable state funds,” he said.

“It is well past time for the Legislature and the administration…to take every single one of these audits seriously and to take every dime of savings we find seriously, because that $320 million can be used to save taxpayer dollars and redirect taxpayer money to where it can be better utilized to improve the lives of all Pennsylvanians.”

As for the governor’s office, they said Thursday that not everything is necessarily doom-and-gloom.

While acknowledging use of the Treasury line of credit, Wolf spokesperson Mark Nicastre said outside agencies have seen positive advances in Pennsylvania’s fiscal picture.

"We have recently seen positive signs regarding the commonwealth’s financial outlook from S&P, who removed the commonwealth from CreditWatch; Moody’s, who revised the commonwealth’s financial outlook to stable and upgraded our school district intercept programs; and from the results of our $1.2 billion bond sale that received strong interest from multiple banks and showed that the market recognizes that Pennsylvania is on stronger financial footing," he said.

"The governor looks forward to continuing to work with the Legislature to fix the deficit and move the commonwealth forward."

While the new legislature is not sworn in until early January and the governor does not give his FY 2017-2018 budget address until February, legislative leaders pledged this week to get moving almost immediately on how to address the coming fiscal year in hopes of avoiding a repeat of the FY 2015-2016 budget impasse.

“It was bad before, but it would be even worse if it happens again,” DePasquale said of the prospects of a budget stalemate.

Jason Gottesman is the Harrisburg bureau chief for The PLS Reporter, a non-partisan, online news site devoted to covering Pennsylvania government.