Pennsylvania's budget process is broken. The legislature and governor cannot craft a budget that makes economic sense for the state. This year, political gamesmanship again created an impasse that will almost assuredly lead to another unbalanced budget that fails to deal with the key issues facing the commonwealth.
For the third consecutive year, Pennsylvania's Republican legislature and its Democratic governor failed to agree on a budget. Two years ago, the battle over spending and taxes led to the July 1 deadline being missed, creating problems for months. Last year and this, Gov. Wolf allowed the budget, crafted by the legislature, to become law without his signature or even the means to fund the spending.
Really, does anyone believe it's fiscally responsible to pass a budget that fails to fully fund the government? Yet for years, actual revenues have not met spending requirements.
Yes, the state's constitution requires the budget to be balanced. But it doesn't specifically exclude smoke, mirrors, and make-believe, which is what Harrisburg uses to claim there is enough money to pay for the programs in the budget.
Consider the fiscal year just completed. There is a roughly $1.5 billion shortfall that must be paid before this year's spending begins. That is the largest carryover in eight years.
To make matters worse, the current budget sent to Wolf was $700 million short. The spending is there, the revenues weren't.
The reason this is happening is that political philosophy is running the budget process. The Republican legislature refuses to raise taxes. Let me correct that: The Republican legislature refuses to raise income and sales taxes or other taxes that may offend someone or some group – which means almost any tax.
For example, the lawmakers refuse to pass a natural gas extraction tax. Every other state that has energy drilling uses that tax to raise large amounts of revenue, and it doesn't harm the industry in those states. Seven years ago, candidate Tom Corbett pledged not to impose the tax, and that political act continues to hamstring revenue-raising decisions to this day.
In reality, though, the Republican legislature is not against raising taxes. For example, to fund much-needed transportation infrastructure improvements, the legislature passed a "wholesale" gasoline tax. Pennsylvania now has the highest gasoline tax in the nation.
Because the tax was levied on wholesalers, the politicians claim they didn't raise the retail price — wholesalers did.
To paraphrase Shakespeare, "A tax, by any other name, still smells like a tax."
Worse, the "no tax increase" philosophy does not represent an economic strategy, or at least not an effective one.
If you are going to run a government that refuses to raise taxes, you'd better have an economy that grows fast enough to generate the revenues needed to fund the programs you want to fund.
Unfortunately, that's not the case. The Pennsylvania economy has underperformed for years. Gross state product growth has been slower than that of the nation in five of the last six years. Job growth has lagged the nation for the last four years. In the U.S. News & World Report rankings, the state placed 26th in economic opportunity, 33rd in education, 34th in infrastructure, 36th in government, and 39th in economy. The state's overall ranking was 30th — nothing to be particularly proud of.
Even with this "no tax increase" strategy and an income tax that is one of the lowest in the nation, when it comes to tax climate, the Tax Foundation ranked Pennsylvania in the middle of the pack.
In other words, the strategy of keeping taxes down, especially personal income taxes, has failed to create strong economic growth and enough revenues to balance the budget.
Instead of focusing on keeping taxes low, the state needs to develop a spending and tax strategy that makes the economy more competitive by effectively employing its tremendous human and natural resources.
And then, it has to fund that strategy. That might — or might not — mean raising more revenue. It does require restructuring the personal and corporate tax system so it encourages economic growth, not political contributions. Some taxes might be increased and some broadened, but others would be cut.
As the saying goes, "Insanity is doing the same thing over and over again and expecting different results." Pennsylvania keeps employing a political budgeting strategy that limits its ability to compete. As a consequence, the economy keeps underperforming.
It's time the state's politicians start taking a saner approach to budget and tax policy.