Pennsylvania sinking deeper into budget hole

By Andrew Staub | PA Independent

HARRISBURG, Pa. — Matthew Knittel, director of Pennsylvania’s Independent Fiscal Office, ended a Thursday afternoon briefing with an apology.

“Sorry for the bad news,” he said, not long after revealing the IFO’s latest estimates the state’s 2013-14 revenue could be $608 million less than originally anticipated.

“I don’t think it was unexpected,” Knittel added after the mea culpa.

It wasn’t. Pennsylvania has a revenue problem this fiscal year, but it’s hardly sneaked up on anyone who has been watching the monthly reports.

The Department of Revenue announced Thursday the state collected $328.3 million in General Fund revenue during April, 8.8 percent below expectations. Year to date, the state’s revenue is $504.5 million behind estimates, when adjusting for an $80 million transfer from the state’s liquor store profits that was made ahead of schedule.

It was a sobering sign given that April is one of the largest revenue-collection months of the year. And it makes for a streak of five straight months in which revenues have come up shorter than expected.

A rebound would be unlikely given that May and June are usually months with lower revenue collection numbers, said state Rep. Joe Markosek, the Democratic chairman of the House Appropriations Committee.

“This shortfall creates major problems for the current year’s budget, as well as enacting next year’s budget,” Markosek said in a statement that indicated next year’s spending plan could be off-kilter by $1 billion or more.

So what will Gov. Tom Corbett do?

A report from The Morning Call in Allentown, quoting unnamed sources, said Corbett is looking to cut $800 million from his budget proposal and has asked state lawmakers to find $400 million more in savings.

Corbett’s press secretary, Jay Pagni, didn’t offer any specifics when asked if cuts could be coming.

“In developing the budget, one must look at both revenues and expenditures,” Pagni said. “There will be a review of both sides of that equation and decisions made based upon that review.”

The situation is worse than what the IFO expected in the middle of the fiscal year, when it reduced its revenue expectations by $150 million.

That projected shortfall was attributed to lagging sales tax and personal income tax withholding revenues. The financial picture has grown bleaker since then, thanks to weaker-than-expected job gains, a slower housing market and and weak income growth that led to less consumer spending, the IFO found.

Response to a federal tax increase that took effect in 2013 further complicated the situation, IFO and state officials said.

“We knew that the federal increase would cause some taxpayers to recognize capital gains and shift dividend payments into 2012, but the magnitude of that tax shift was not anticipated,” Revenue Secretary Dan Meuser said in a statement. “Despite having about the same number of tax returns this year as compared to last, we’ve received 22 percent less returns with payments.”

While budget news was grim this week, Knittel offered some hope for the future before his apology, when he said that 2013 was an unusually weak year.

“We think that we have moved by that weakness, and we will have decent growth heading into next fiscal year,” he said.

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