Update on Pennsylvania Budget Situation

Last week the Pennsylvania General Assembly passed a $31.6 billion budget, but the spending plan far exceeds the state’s official revenue projections – resulting in a $1.2 billion shortfall with the current revenue structure. Governor Wolf is legally required by the Keystone State’s Constitution and Administrative Code to veto any budget in which outlays exceed projected revenue. In fact, the Governor is obligated to balance the budget, even if the General Assembly fails to do so. Governor Wolf has at his disposal both the line item veto to strike appropriations and the item reduction veto, to lower the amounts allocated to specific programs. In fact, Wolf and his predecessor used these tools to achieve a balanced budget the last two fiscal years. This would allow the state to achieve a balanced budget without having to levy additional taxes.

Sadly, Wolf instead agreed to allow the spending plan to take effect with the expectation that the General Assembly would find a means to pay for the budget shortfall. He is expecting that the legislature raise or levy additional taxes on state residents to pay for the spending increase. Throughout the ongoing budget negotiations Governor Wolf urged the General Assembly to raise additional revenue by raising rates on so-called “sin taxes”. The state already collects $2.73 billion a year in sin taxes, more than any other state in the nation. These taxes are highly regressive and any additional taxes would affect the state’s poor disproportionately,

Current discussions revolve around raising the cigarette tax by $1 per pack. However, the cigarette tax has become an increasingly unreliable source of revenue. According to the Independent Fiscal Office, the revenue from the cigarette tax in Fiscal Year 2017 is projected to fall 3.7 percent in the Keystone State. With the unreliable nature of cigarette taxes, it is likely that revenues from cigarette taxes will fall short of proponents’ projections – further exacerbating the budget shortfall.

In addition to raising taxes on residents, the state’s fiscally irresponsible actions actions have placed the state’s credit rating at risk. Earlier this week, Standard and Poor’s expressed concern that without a balanced budget the state’s bond rating may face yet another credit downgrade. By waiting for the legislature to come up with the revenue necessary, the Governor has created a sense of uncertainty over the state’s financial future. This is particularly true because the General Assembly has already had drawn out negotiations over this year’s budget and no clear compromise is in sight.

Governor Wolf has both the means to balance the budget and the legal requirement to do so. By not vetoing the bill or making spending adjustments while allowing an unbalanced budget to become law, the Governor has shirked his legal obligations and placed the state’s credit rating at risk. National Taxpayers Union believes the best course of action is for the Governor to make spending cuts to bring the budget into balance without raising taxes. We will continue to monitor these developments and alert taxpayers to the threat posed by irresponsible and illegal budgeting practices.