Pennsylvanians have made tough decisions amid the profound economic costs of the COVID-19 pandemic. Millions of Pennsylvanians lost their jobs temporarily or permanently this year. Sadly, families continue to struggle and sacrifice to stay afloat.
In the coming state budget debate, lawmakers and the governor need to back them up — and they can do so by shielding families from job-killing tax hikes.
According to a Wall Street Journal analysis, 54 of the state’s 67 counties “recorded year-over-year unemployment rate increases that were in the top 20% nationally.” Pennsylvania now shows around 500,000 net jobs lost since February. Unemployment rates have exceeded all previous records. Meanwhile, Gov. Tom Wolf has yet to alter his plans to dramatically increase state spending and has offered no solution to close a multi-billion-dollar state budget hole.
Indeed, the governor helped dig that hole through arbitrary and excessive shutdowns that devastated businesses. And for years prior, Wolf routinely spent hundreds of millions of dollars beyond the budget passed by lawmakers.
Months into this severe pandemic response, the economy is slowly recovering, as are state revenues, but lawmakers face a budget shortfall of at least $3 billion, according to the Independent Fiscal Office’s latest projections. As Pennsylvania families try to get back on their feet, they cannot afford higher taxes to pay for Wolf’s overspending.
Today’s budgetary issues date to earlier this year. In May, responding to economic uncertainty — and potential government revenue problems — lawmakers passed, and Wolf signed, a “stopgap” budget. This budget provided five months of funding for most programs (school districts received full funding at last year’s levels). While it kept the government functioning and bought lawmakers more time, it also delayed necessary tough decisions. Now, this funding will run out by the end of November.
To avoid tax hikes that would crush the state’s economy — and families — lawmakers must consider reforms that will cut spending.
One key opportunity is tackling the “shadow budget,” a group of off-budget funds that have amassed more than $10 billion in reserves. We calculate that government officials could move $345 million from these shadow budget reserves without affecting spending.
There are also numerous options to reduce planned annual spending. Some programs require less funding during pandemic conditions. For example, with many state employees working from home, lawmakers could reduce millions in office space and travel costs. In addition, with tourism reduced, the Historical and Museum Commission could operate on a temporary reduction this year.
No manager of a government program wants to consider a budget reduction, even a temporary one. But this isn’t a question of whether we will have to make sacrifices. It’s a question of who should make the sacrifices — some government programs or families struggling to make ends meet.
Lawmakers must also consider reducing nearly $1 billion in corporate subsidies used to attract big business to the state. These programs are handouts to select businesses that hamper growth by undermining reform that would improve our business climate for all job creators.
Several corporate welfare programs have a poor track record or even a negative return on investment. Legislators should reduce corporate welfare waste in industries like film production ($61 million), research and development ($48 million), and mobile telecommunications ($4 million).
Privatizing state-owned liquor stores should also be a priority. State-run liquor stores, a relic of prohibition, utterly failed Pennsylvanians during the pandemic, with an embarrassing series of debacles that turned residents into bootleggers and cost the state millions in lost revenue. No wonder 61% of voters support want government out of the liquor business.
Allowing private retailers and wholesalers to sell wine and spirits — like 48 other states do — could generate more than $1 billion in immediate revenue. At the same time, this would reduce the costs of running state stores, decrease pension obligations and boost sales.
Our state must be fiscally solvent and find a way to balance its budget — even in hard times. But lawmakers must do so without adding to the suffering that working families and local small businesses already endure.
Thankfully, existing proposals can close this budget hole without raising taxes or making devastating cuts. But it will require Wolf and the Legislature to closely cooperate. For the benefit of all Pennsylvanians, it’s time they do.
(Nathan Benefield is vice president and COO of the Commonwealth Foundation, Pennsylvania’s free-market think tank.)
