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Tuesday, June 02, 2009

Budget deficit was predicted, and ignored.

This was our blog post from July 04, 2008...yes, Independence Day, but also the day Gov. Ed Rendell signed the 2008-09 budget despite clear evidence that it was unrealistic in tax revenue projections.

Will this budget's ink be red in 2009?

No, that's not our headline, but Pete DeCoursey's at Capitolwire.com, the insider's news service. With Pete's permission, I'm posting his entire column below.

Our only question is, would your family budget like this? We hope not.

The state should be preparing for the worst and hoping for the best. That's called being fiscally prudent. Instead, they plan to spend and borrow like tomorrow's bad news will never come.

But it will be far better to not increase spending by $1 billion this year than to have to cut a billion dollars in spending next year (which isn't going to happen) or raise taxes (which is most likely to happen). Have a Happy Independence Day! (try, at least)

OFF THE FLOOR: Will this budget's ink be red in 2009?
A Capitolwire Column By Peter L. DeCoursey
Bureau Chief Capitolwire

HARRISBURG (July 4) - The most important 2008 budget story most Pennsylvanians never read, but will wish in 2009 that they had, wasn’t written by me or anyone at Capitolwire – sigh – but by Marc Levy of the Associated Press.

Personally, I think it was along the same lines of the column I wrote on June 16 about how Gov. Ed Rendell may not fear spending the state into a tax hike next year. Why not? Because he clearly feels Pennsylvanians can and should be taxed more to pay for the programs he says will disproportionately improve the lives of Pennsylvanians, compared to the taxes they pay.

But while I wrote about the tricks of budgets past, Levy exposed in a very timely story many of the maneuvers and dangers of this budget before it was even given to lawmakers.

Yesterday, his story began: “Even as the Legislature prepares to vote on a $28.2 billion budget that draws heavily on one-time dollars, Senate officials say a $1 billion deficit could pile up in the next 12 months and force additional cuts or tax increases.”

Senate Appropriations Committee Chairman Gib Armstrong, R-Lancaster, told Levy that “he expects a deficit at the end of the fiscal year of between $800 million and $1.2 billion."

With only about $740 million in the state Rainy Day Fund, that means the state will have no margin for error and its current revenue slowdown may continue. Armstrong said he had to approve the current $28.2 billion budget, a 3.8 percent increase, because it was impossible to get the Legislature and Rendell to approve anything smaller.

But hey, it is part of budget season for the opposing party to exaggerate, right?

It is part of the budget tradition for the opposition, if they are Democrats, to say that the governor is shoving the poor off an ice floe to drift away to poverty and death. And if the opposition are Republicans, they say – as Armstrong’s predecessors like Sen. Bob Thompson and Rep. Brett Feese used to – that the governor is spending so much, he is not only going to raise taxes but start taking away your limbs to sell them AND SEND ALL OF THE MONEY TO PHILADELPHIA.

But if you dismiss Armstrong, then what do you say about the quote Levy collected from Paul Dlugolecki, longtime senior Appropriations Committee staffer?

He told Levy that “he and others expect a $1 billion deficit that could require a tax increase.” And, “If this economy continues its downturn, we could easily get up that high. Two billion is not out of the question.”

Dlugolecki’s candor brought him a reprimand from his former longtime boss, Sen. Vince Fumo, D-Philadelphia, “because you are making trouble for us” in passing the current budget.

How could we get to that kind of deficit by next year’s budget? By relying on more than half a billion dollars in one-time revenues that won't recur is a good start.

First, this budget plows all $35 million the law says the state has to put into the Rainy Day Fund, and the rest of the $103 million current-year-surplus into next year’s budget.

The proposed budget also gathers $200 million in unspent money from various accounts and grabbed at least $100 million more in revenues from state liquor and recycling accounts, while pushing off $50 million in spending to the Lottery Fund.

Weeks after Budget Secretary Mike Masch announced the administration plan to increase the state’s contribution to teacher and employee pension funds to ease a huge pension payments crisis looming just a few years away, they cut the state pension contributions by $90 million to the teachers fund.

And they are putting off $107 million in 2008-2009 welfare pharmaceutical bills until 2009-2010.

And that is just the $530 million in one-time-only budget measures we know about. From experience, we usually learn about another $300 million in such tricks after the annual state spending plan is passed.

Why are so few worried and so few talking about this? Well, details have been hard to come by, and Levy’s story broke new ground on some of the one-time measures.

And frankly, at this point in the budget season, most are more worried about getting the damned thing done than worrying about a half a billion here or there.

But if Armstrong and Dlugolecki are right, we’ll certainly be worried next year, as Rendell will use any fiscal crisis to hike taxes to increase spending.

Happy 4th of July.

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