The limits of politics in Pennsylvania: the conflict that blocks progress ... Selective small new investments in educati
Overview: Where are we? • The limits of politics in Pennsylvania: the conflict that blocks progress • Two different views of government, creating an impasse • One sees government as critical driver to broadly shared prosperity • The others believes in cutting government and taxes
• The power of the minority to say no • Governor Wolf’s proposal this year:
• Austere budget: • No broad tax increase: balanced with just a small severance tax • Selective small new investments in education, higher education, workforce development and training, fighting the opioid epidemic, and other human services.
• How the election year affects the budget • Right direction but far enough: Pennsylvanians need to choose
What happened to the structural deficit? • Structural deficit: revenues under current law not enough to support services provided under current state and federal law. • We have faced a structural deficit every year since the Great Recession. • Important to understand where it came from and why it is, perhaps only temporarily, gone.
Long Term Sources of the Structural Deficit • Not spending increases • Corporate Tax Cuts • Upside down Tax System • Aging of population • Older citizens spend less on goods that services which are not taxed by the sales tax
Pennsylvania General Fund Expenditures and Revenues as a Percent of Gross State Product (GSP) Fiscal year ending Average 1997 to 2011 Average 2012 to 2015 Average 2016-2018 Governor's Budget 2018-2019
Expenditures / GSP Revenues / GSP 4.66% 4.85% 4.25% 4.37% 4.23% 4.37% 4.17% 4.53%
Reduction in Spending Compared to 1997-2011 -9% -9% -10%
Projections 2020 to 2023 4.09% 4.25% -12% Source: Pennsylvania Budget and Policy Center based on Independent Fiscal Office, "Economic and Budget Outlook, Fiscal Years 2017-18 to 2022-23," November 2017 (for years 1997-2018); and Governor's Executive Budget 2018-19, p. A2-3 (years 2018-19 and on).
Pennsylvania’s Upside Down Tax System: Higher Income Taxpayers Pay a Lower Share of their income in State and Local Taxes
Short Term Sources of the Structural Deficit • Slow recovery from the recession • Impact of prospective federal tax cut on delaying income in 2016 • Balancing budgets with one-year revenues • Shifting payments later and receipts earlier • Borrowing from special funds • Borrowing on the basis of anticipated revenues (Tobacco settlement borrowing of $1.5 billion.) • Selling licenses for gaming or liquor sale.
What we expected last fall
Why can Governor Wolf Project Balanced Budgets? • Short term 2018-2019
• Spending restraint in all areas
• Medicaid: effective management and some short term funds • Impact of reforms last year: consolidation of departmental services, reduction in complement of state worker, reducing in state leasing of space, etc.
• Tax revenues coming in more strongly • New projected revenues: Severance Tax $248 million, State Police $63 million
• Long term
• Increases in pension spending leveling off
• Meeting actuarial requirements of PSERS for third year in a row and SERS for second year in a row • PSERS unfunded debt retired by 2035 and SERS by 2040
• Corporate Income Tax revenues as Delaware loophole is closed by move to combined reporting and slow reduction in corporate tax rate from 9.9 to 7.99%; brings in close to a billion dollars a year in early years, hundreds of millions later
Can we avoid structural deficits in the future? • Short term reasons for concern • 2018-2019 relies on $500 million of non-recurring revenues • Managed Care Gross Receipts Tax $351.7 million • Gaming expansions $42.8 million
• Long term reasons for concern • Will the General Assembly enact corporate tax reform and a severance tax? • How will the state deal with a recession that drastically reduces tax revenues?
General Fund Expenditures
Where Spending Increases • Total: $989.8 million • Mandatory Increases • New programmatic initiatives
Mandatory Spending Increases In 2018-19 Budget
Spending Category
Increase in Spending (in Millions) Explanation
Pensions
$275
Medical Assistance Other
$119 $291
Total
New Mandated pension contributions. 1 Increases due to caseload growth, Medicaid expansion and medical inflation. 2
$685 1 Governor's 2018-19 Executive Budget, p. A1-7 2 Governor's 2018-19 Executive Budget, p. A1-29 Source: Pennsylvania Budget and Policy Center based on Governor's 2018-19 Executive Budget, Feb. 7, 2017
New Inititatives Proposed by Governor Wolf, 2018-19 In millions Education Basic Education Subsidy $100.0 Special Education $20.0 Early Childhood Education $40.0 Higher Education $15.0 Career and Technical Education $50.0 Labor and Industry Apprenticeship $7.0 Industry Partnerships $3.0 Community and Economic Development Pennsylvania First Human Services Child Care 1 Intellectual Disabilities and Autism Opioid Epidemic 2 Lyme Disease Efficiency for Birth Certificates Records Subtotal - General Fund only Total
$5.0
In millions Police, Infrastructure 3 Body Cameras for Police Police Cadet classes Roads and Bridges Environment Staffing and other needs Agriculture To address Spotted Lanternfly Executive Offices Resources for victims of sexual misconduct Multiple Departments 4 Upgrading radio system
$6.0 $12.3 $100.0 $2.5 $1.6
$0.6 $13.9
$24.2 $16.0 $7.3 $2.5 $2.4
NOTES AND SOURCE 1 Includes $10 m to serve additional kids, $10 m for STARS recalibration, $3 m infant/toddler, $1.2 nurse family rate increase
2 includes $4.5 for community-based family centers, .8 m rate increase, $2 m for PA Commission on Crime and Delinquency 3 Roads and Bridges paid for by the Motor License Fund. Police line items paid for by the General Fund and Motor License Fund combined
4 Radio upgrades as a new intiative is occuring in Conservation and Natural Resources, Criminal Justice, Emergency Management Agency, Environmental Protection, Militay and Veterans Affairs and General Services. Some of this money is paid for by the General Fund, other parts paid for with other funds Source: Pennsylvania Budget and Policy Center analysis of Governor Wolf's 2018-19 Executive Budget.
$303.0 $429.3
Education
Context on Pennsylvania K-12 Education • States and local school districts share responsibility for funding K-12 schools • A low share (37%) of K-12 funding in PA comes from the state (compared to the national average of 47%) • PA ranked worst of all states in terms of disparities between rich and poor school districts
Increased Funding for Education • Basic Education Funding • Early Childhood Education • Special Education • Pennsylvania State System of Higher Education
$100 million $40 million $20 million $15 million
Special Education • Special Education • Increase of $20 million to Special Education
• Early Intervention • Increase of $11.6 million for Early Intervention for children ages 3-5
Early Childhood Education • $40 million increase for Early Childhood Education includes: • $30 million for Pre-K Counts • $10 million for Head Start Supplemental Assistance
• This funding would allow an additional 4,400 children to enroll in these programs
Higher Education
Workforce Development
Workforce Development Funding • Increase for Career and Technical Education (CTE) (DOE)
$50 million
• $10 million – funding for CTE to go through existing formula to school districts • $40 million for PA Smart Initiative
• Funding for Apprenticeships and Industry Partnerships (DOL)
$10 million
• $7 million for Apprenticeships • $3 million for Industry Partnerships
• Manufacturing PA and Economic Development Initiatives (DCED) • Continued funding for Manufacturing PA ($12 million) • $5 million for Pennsylvania First
Human Services
Human Services Budget - Basic Information • Governor proposes a 1.8% increase in General Fund spending to reach a total of $12.56 billion in state funds • More than half of this spending goes to Medical Assistance and LongTerm care • Governor proposes to merge the Department of Health and the Department of Human Services
Priorities in Human Services Child Care • Increase of $25 million state funds (with $5 million federal funds) • Provide 1,600 children and families with access to child care • Adjust the STARS ratings system to incentivize child care centers to improve • Improve access to care for infants and toddlers • Increase of $1.2 million for Nurse Family Partnerships to increase rates for providers
Priorities in Human Services • Opioid Addiction - Increase funding for: • Federal dollars ($26.5 million) to the Department of Drug and Alcohol for programs aimed at expanding access to treatment and support. • $2 million to accredited specialty drug courts (recommending treatment over criminalization) • $4.5 million to train service providers on evidence-based home visiting models (serving 800 families)
Priorities in Human Services • Intellectual Disabilities and Autism - $16 million of funds will go towards: • 800 youth in 2018 for individuals transitioning out of high school special education and into adult services • 100 individuals off the waitlist for home and community based services • 40 individuals entering Adult Community Autism Program • 25 individuals moving from State centers into community programs
Environmental Protection
Other Commitments by the Governor • Raising the Minimum Wage • Raise overtime pay • Earned Sick Leave
The Governor’s Budget • Priorities are clear and appropriate • • • •
Education at all levels Workforce Training Human Services Protecting the Environment
• Major achievements • Reducing structural deficit through efficiencies and spending restraint • Meeting pension obligations; paying down unfunded pension debt • Restoring Corbett education cuts
How will we close the public investment deficit without new revenues? • K-12 Education: at least $3-4 billion to equitably and adequately fund our schools • Higher education $1 billion needed to reduce tuition for higher education and workforce training • Human Services • Medicaid cost increases as the population ages • Provided adequate services for those with physical and intellectual disabilities and mental health issues • Adequately pay human services providers • Infrastructure needs: roads, bridges, public transit, water and sewer systems • Selected property tax relief
The Voters Will Decide
