More bad fiscal news for PA as IFO lowers revenue projection
By Eric Boehm | PA Independent
Already facing the prospect of a $1 billion deficit heading into next year, state budget makers got another round of bad news this week when Pennsylvania’s Independent Fiscal Office lowered its revenue projections for the current year.
COMING UP SHORT: Revenue from sales taxes and personal income taxes have fallen well short of expectations, prompting the IFO to revise their projections for the year. (Source: Independent Fiscal Office Mid-Year Report)
The IFO – which serves a number-crunching function similar to the federal Congressional Budget Office – now expects Pennsylvania to finish the year about $150 million short of expectations, with modest job gains and slow wage growth primarily to blame for the sluggish tax collections.
“Things are just a bit weaker on the economics,” said Matthew Knittel, executive director of the IFO. He said the global economic forecast the office uses to make projections has been revised downward, adding to state-specific concerns about weak sales and income tax collections.
In the grand scheme of a $28 billion budget, $150 million is not a huge amount, but in a year like this every dollar will count.
Through December, state revenue is $65 million behind the IFO’s projection for the year.
General fund revenue increased by only 0.5 percent during the first half of the current fiscal year, and robust growth of about 2.7 percent would be required over the last six months to make ends meet, the IFO projected.
“Given what we’ve experienced in the first half of the year, we just don’t expect that,” Knittel said.
Under the new projections, Pennsylvania stands to collect just a hair over $29 billion from taxpayers during fiscal 2013-14.
GETTING BETTER ALL THE TIME: Both the IFO and the Department of Revenue expect increases in revenue during the second half of the year, but the DOR’s projections have been more accurate through the first half.
But revenue is right on target with projections by the state Department of Revenue, which uses a different model than the IFO. Through December, Pennsylvania was running $2.6 million ahead of expectations, the administration reported.
Both sets of projections rely on an uptick in revenue during the second half of the year.
Either way, less-than-robust revenue would add another wrinkle in a year when Pennsylvania is wrangling with an expected deficit of more than $1 billion heading into 2014-15.
Despite the deficit and lower-than-expected revenue, early signs from the governor’s office suggest Gov. Tom Corbett will call for increases in state spending on some items when he gives his fourth budget address in early February.
“Protecting our citizens and helping them in times of need is one of the core functions of government,” Corbett said this week.
Some pundits have suggested the increases are a political move by the governor, who is facing re-election with sagging poll numbers, particularly among women.
Whether that’s true or not, the strategy could be the same in other areas, such as education funding. Corbett has been hammered — at times unfairly, since most of the cuts were the result of disappearing federal dollars — for cutting education funding during his time in office, and he has shown signs of wanting to boost education in the coming budget announcement.
Lower revenue makes it harder to justify spending increases anywhere, but the state is also facing a sharp increase in mandatory costs next year, primarily due to pension obligations.
Escalating pension costs will consume an estimated $2 billion in next year’s budget, which must be approved by the end of June, up from $1.4 billion this year.
Boehm can be reached at Eric@PAIndependent.com and follow @PAIndependent on Twitter for more.
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