Pa. state budget: government by postponement

By Charles Greenawalt II

The basic law that forms the foundation for the study of politics and economics is simple: Human desires are infinite, but societal resources are finite. This understanding illuminates human behavior and the consequences of that behavior.

During our state and federal budget seasons, this maxim should not be forgotten.



Governor Rendell and the Legislature have taken the easy way out in this budget and left the hard decisions for another day, argues Charlie Greenawalt.

Pennsylvania appears to have a tentative budget for 2010-11. Indeed, it’s the first budget the Legislature passed on time — by 1 July — during the eight years of Gov. Ed Rendell’s tenure. However, the governor did not sign it immediately when it hit his desk Thursday.

Democracy is based on building consensus and compromise, and this tentative agreement is a patchwork quilt of compromises.

The criticism and ridicule that the two branches of our commonwealth’s government would face if they had not tentatively agreed upon a budget by July 1 this year was not an attractive prospect, especially for the Legislature.

Upon closer inspection, this compromise agreement postpones confronting the gales of fiscal reality until next year. In effect, we are opting to postpone tough budgetary choices and let a new governor and a new General Assembly deal with them. Government by postponement?

Gov. Rendell had proposed a $29.3 billion budget for 2010-11 that would have increased business taxes, imposed new taxes on natural gas and tobacco, and expanded the sales tax to many services and goods that are presently exempt from them. He also wanted to leave office viewed as a staunch friend of education.

The Senate Republicans, who have a 30-20 majority, have been stalwarts in defense of a no new taxes position. The Senate GOP believes that the state’s citizens are already overtaxed and that new taxes will delay an economic recovery for the commonwealth.

So while the GOP fought off every new tax proposal, the governor stood firm with his insistence that basic education funding should be increased by at least $250 million.
In the end, a $28.05 billion budget was agreed upon with no new taxes and with the governor’s $250 million boost in basic education funding. The budget does call for the establishment of a severance tax on natural gas extraction in Pennsylvania in the Marcellus Shale region that will be enacted by Oct. 1 and effective in January. The rate and the distribution of this revenue will be determined in the next few months.

While both sides can proclaim certain victories in this round of budget negotiations, this budget has not dissipated the storm clouds that loom ahead. Senate Majority Leader Dominic Pileggi has identified a $5 billion structural deficit that will emerge next year.

The budget also relies on an $850 million FMAP (Federal Medical Assistance Percentage) reimbursement that Congress has yet to approve. In fact, the U.S. Senate recently defeated a bill that contained these monies.

If this payment is not forthcoming from Washington, the new administration and General Assembly will have to turn to the basic education money that Gov. Rendell championed to make up the shortfall. This budget also assumes a 3 percent growth in revenues — a highly optimistic projection given the national and state economic picture.

In addition, the commonwealth is anxiously awaiting a decision from the Judiciary to see if Pennsylvania must repay the $800 million it took from the MCare Fund last year to balance its budget.

Will we have to repay that amount as well?

Rather than investigate uncertainties about these questionable areas of the state budget, our political leaders and budget negotiators postponed our day of reckoning. The final numbers of this budget were far less important for the negotiators than the symbolic victories legislators could claim.

While this essay began with the invaluable maxim surrounding all of economics and politics, another one also needs to be considered. This maxim has been attributed to many authors through the generations from Ben Franklin to Alexis de Tocqueville to Alexander Tytler: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largess from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.”

Throughout the budget-making processes in Harrisburg and in Washington, all discussion has been about expanding services, serving new clients and taking a greater percentage of society’s income for our three levels of government. One hears little discussion of wealth creation.

For the last 20 years, we have seen the greatest transfer of wealth in history. This transfer has been between the United States and China and India.

Our government and its leaders have been poorly informed, shackled by ideology or persuaded to “look the other way” for lavish campaign cash payments so that a large percentage of our economy’s manufacturing sector could be dismantled and sent overseas for larger short-term corporate profits.

Today, the middle class is disappearing, and few school students wish to enter the private sector. Most students desire to work for the government or be taken care of by the government.

We should be focusing all of our energies on bringing new jobs and wealth to the commonwealth instead of engaging in gladiatorial combat over the dwindling wealth of the Keystone State.

CHARLES E. GREENAWALT II is a professor at Millersville University and a senior fellow at the Susquehanna Valley Center for Public Policy


Associated Press