Last week the Pennsylvania House and Senate adopted the 2018-2019 budget by overwhelming margins. Thanks in large part to the economic growth generated by federal tax cuts enacted by the Trump administration, and the fact that it is an election year, the voices calling for tax increases were more subdued than usual this year. Because the underlying cost drivers were not dealt with in any meaningful way in this budget, the reprieve will be temporary.
The first problem with the budget was that it exceeded the growth cap established by the Taxpayer Protection Act (TPA). The TPA limits spending growth to the rate of inflation plus population growth. As noted by the Commonwealth Foundation:
“The budget plan increases General Fund spending by more than $718 million—an increase of 2.2 percent. (Note that House leaders place the increase at 1.7 percent—adding $159 million of ‘2017-18 spending enacted in 2016-17’ to the baseline.) That means Harrisburg is demanding nearly $300 million more from Pennsylvanians than it would under TPA.”
In addition to the accounting gimmicks used to hide a portion of the spending increase, this year’s budget continues to underfund the Commonwealth’s substantial pension obligations. Members of the General Assembly will argue that this budget meets the actuarily recommended contribution (ARC). Meeting the ARC would be meaningful if the calculations were based on realistic assumptions; sadly, that is not the case. The ARC is artificially constructed and significantly underestimates pension liabilities and overestimates the overall return on the pension assets.
An on-time budget would be something to celebrate if it made significant changes to the Commonwealth’s fiscal trajectory. The 2018-2019 budget avoids making any tough choices. It overspends and fails to prioritize in any meaningful way. We are running out of road for the proverbial can to be kicked down. The longer the General Assembly postpones reform, the fewer options we will have, and the more painful the changes will be for everyone.