From today’s “Politically Uncorrected” by G. Terry Madonna and Michael L. Young:
1. The State is Struggling with an Operating Deficit and Not a Structural Deficit. The distinction is crucial. An operating deficit occurs when projected revenues for a fiscal year are less than projected expenditures. Operating deficits are temporary and self-correcting when business conditions improve. Operating deficits “go away” much as common colds go away with rest and time. But structural deficits present much greater threats to a state’s fiscal health. A structural deficit is present when projected revenues will never match budgeted expenditures unless either revenues are permanently increased or expenditures are permanently decreased. Structural deficits untreated only become worse over time. The state has experienced structural deficits before – in 1971 under Shapp and again in 1991 under Casey. But this one is not structural, it is an operating deficit and it requires no major tax increases or permanent expenditure cuts.
2. Rendell’s Recession Budget is Conservative Compared to Budgets Proposed by His Predecessors. Only twice in the last forty years – 1971 and 1991 – has the state confronted fiscal challenges comparable to those today. But Rendell’s budget can’t be compared to either Casey’s 1991 budget that proposed a billion dollars in new taxes or to Shapp’s 1971 budget that proposed a progressive income tax. Both Casey and Shapp, like Rendell today, were responding to severe fiscal crises. Under Shapp, the state faced literal bankruptcy; under Casey, the consequences of inaction would have been catastrophic. But Rendell, in eschewing major new taxes, is following neither of these benchmarks. The difference between these earlier budgets and now is the anticipated federal stimulus funds in Rendell’s budget. Without these augmentations there would be a need for deeper cuts or new broad based taxes to balance the budget.
3. The Budget May Not be Very Late. A protracted budget stalemate conjures up policy and personal nightmares. Thousands of workers would be laid off. The funding for state programs would be halted. Education dollars would be held up, and public confidence in state government would plummet. But none of this may happen. Most really late budgets occur in recessions that produce both program cuts and large tax hikes. Such conditions make late budget adoption virtually automatic and highly predictable. But the 2009 budget proposals include only modest narrow base tax increases along with program cuts. Great political battles are usually fought over raising taxes, not temporarily lowering expenditures.
4. Conflict Over this Year’s Budget May be Muted but It Won’t Disappear. Legitimate political, ideological, and institutional differences exist among Pennsylvanians and they tend to play themselves out in the budget process. This year several factors are likely to work against an easy resolution to the budget battle. Republicans in the state Senate have already thrown down the no tax gauntlet. And they want less spending too. They hold a 29 to 20 edge in the upper chamber, and no budget will be adopted without Republican support. They will be joined by the dozens of recently elected, reform-minded, no tax increase members who increasingly populate the legislature. Moreover, on many of the big issues that remain to be resolved, such as healthcare insurance and tuition assistance, Republicans and Democrats are on different planets. In addition, several of Rendell’s initiatives, including the legalization of video poker and the county sales tax proposal will further stoke the fires of ideological debate.
5. The Proposed Budget Might be the Wrong Budget to Worry About. The projected $2.3 billion deficit is only an estimate of how large the shortfall might be by the end of the current fiscal year, ending June 30. And of course beyond that is anyone’s guess. The recession seems to be worsening – indicating that the deficit could actually enlarge over time. The projected deficit for the next fiscal year could add another $2.5 billion or more to the cumulative price tag – conceivably creating in 2010 a gubernatorial election year budget impasse that might make 2009 seem like a quiet day in the country.
