Report points to PA’s fiscal challenges heading into tough budget

By Andrew Staub | PA Independent

HARRISBURG, Pa. — Just weeks away from Gov. Tom Corbett’s budget address, there’s more bad vibes about Pennsylvania’s fiscal health.

Using financial data from 2012, the Mercatus Center at Fairfax, Va.’s George Mason University placed Pennsylvania among the bottom 10 states in terms of its fiscal condition. Pennsylvania clocked in at No. 42 overall and landed in the bottom half of all four categories the center used to determine the overall ranking.

“Although the ranking is a snapshot in time, the states at the bottom are there due to years of poor financial management decisions, bad economic decisions, or a combination of both,” the report stated.

The report comes about two months after the Independent Fiscal Office said Pennsylvania would have to deal with an estimated $839-million budget shortfall in the next fiscal year.

The news only got worse when Budget Secretary Charles Zogby said the funding gap is as high as $1.4 billion, considering additional information about diminished federal matching funds for Medicare.

“We do have a really short-term budget problem. There’s no doubt about it,” said Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, a nonpartisan research organization.

The Mercatus Center report said Pennsylvania fared particularly poorly when considering its cash solvency, which looks at the money the state can access easily to pay short-term obligations. The report ranked Pennsylvania No. 47, ahead of just Connecticut, California and Illinois.

Despite the gloomy ranking, Matthew Knittel, director of the IFO, doesn’t anticipate Pennsylvania having problems paying its bills. The report has some relevancy, he said, though he said he wasn’t sure it’s proper to combine four measures into one index.

“For short-term obligations, I don’t foresee any issues,” he said when asked about Pennsylvania’s low cash-solvency ranking.

Knittel pointed out that the center heavily weighted the cash-solvency rankings when it determined the overall ranking. That helped boost Alaska’s No. 1 ranking, seeing as the state must keep a lot of cash on hand because of its “very volatile” revenue streams, he said.

That doesn’t mean it isn’t shaping up to be a tough budget year in Pennsylvania.

“It will be more difficult,” Knittel said. “One of the reasons for that is there’s no carry-forward balance from prior years. That’s one of the main things that will make it more difficult.”

For Ward, the report provides evidence that Pennsylvania’s missing out on a valuable revenue stream — a severance tax on the natural gas extraction.

The Keystone State does have a local impact fee that raises about $200 million annually, but Ward said at least five of the states that made the report’s overall top 10 have large amounts of oil and gas, as well as “robust” severance taxes.

“That’s one lesson for Pennsylvania,” Ward said.

Corbett doesn’t support a severance tax, meaning a bipartisan cadre of lawmakers pushing for one probably won’t emerge victorious. The state likely will pursue several other revenue options — like online gambling, for example — to try to balance the next budget.

Ward also pointed to declining revenue from corporate tax cuts as another contributing factor to the anticipated structural deficits.

The report ranked Pennsylvania 37th for budget solvency, which is the ability to create enough revenue to cover expenditures during a fiscal year.

The state had a slightly better outlook for long-run-solvency, ranking 30th in the ability to use incoming revenue to cover all expenditures, including long-term obligations like pensions and infrastructure maintenance, according to the report.

Pennsylvania had its best showing in the service-level solvency, ranking 26th when considering whether the state has enough resources to provide residents with an adequate level of services.

Andrew Staub is a reporter for PA Independent and can be reached at Andrew@PAIndependent.com. Follow @PAIndependent on Twitter for more.

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