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End of Year Budget Queues Up Problems for Next Year

Pennsylvania Fiscal Code

In May of 2020, the House and Senate passed a partial budget. Last week, the General Assembly passed Senate Bill 1350 (SB 1350). It is the legislation containing the budget for the rest of the year. As far as budgets go, it did no favors for taxpayers. 

SB 1350 increased spending by more than 7.4 percent over the previous year’s enacted budget. Limiting spending increases to the inflation rate plus population growth would save taxpayers millions of dollars over time and force the General Assembly to prioritize spending. The rate of inflation plus population growth is 2.1%. In other words, this budget increased spending by more than three times what would be reasonable.

It is worth noting that some media coverage will report the increase as being 3.8 percent. The General Assembly passed supplemental funding to cover Governor Wolf’s overspending from last year. They did nothing in this budget to prevent him from overspending again.

The second budget component passed last week was House Bill 2536 (HB 2536), the Fiscal Code. If the budget explains how much money the government will spend, the fiscal code describes where the money originates. HB 2536 relies on some one-time fund transfers to balance the budget. 

The most questionable transfer is the use of federal CARES Act funding for the Department of Corrections. The CARES Act funding was intended to help businesses deal with the impact of COVID-19. The federal government could object to using the funds in this way. Even if they don’t, using one-time funds to pay for ongoing expenses means that there will be a more extensive budget hole to fill next year. Our friends at the Commonwealth Foundation provided a great illustration of a past problem associated with one-time funding:

“In 2009, Gov. Rendell and lawmakers used federal stimulus funds to reduce state funds for public schools and Medicaid spending. After the stimulus aid expired, the media wrongly blamed Gov. Corbett and Republicans for “cutting $1 billion from public schools.” Gov. Wolf may try another tax hike to fill in the gaps and avoid similar accusations.” 

There was one final item of interest in HB 2536. It also granted a 10-year extension to the City of Harrisburg to continue collecting a “Local Services Tax” charged to people who work in the city but live elsewhere. That might seem like a small item, but how that item ended up in the Fiscal Code is worth exploring a little.

The Local Services Tax provision was put into the Fiscal Code by the Senate Appropriations Committee. The new Chief of Staff for Senate Majority Leader Jake Corman used to work for Maverick Strategies, a lobbying firm. One of Maverick Strategies’ clients is the City of Harrisburg. They had been lobbying the General Assembly for the Local Services Tax extension. What are the odds that the extension finding its way into the Fiscal Code was just a coincidence?