December 17, 2010
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Mid-Year Budget Brief

With only a few weeks left in 2010, Pennsylvania is at the front of the pack nationally when it comes to creating jobs and putting people back to work.

Across the state, we have seen a gain of nearly 70,000 jobs and remain well above the national unemployment rate.

Here in Philadelphia, we have seen a net employment growth of nearly 20,000 new jobs since January, regaining more than half of the lost jobs since the October 2008 peak of 672,600 jobs.

On Thursday, December 16, I attended a Mid-Year Budget Briefing by the governor where lawmakers learned details about how Pennsylvania is managing our fiscal challenges. Immediately after the governor’s briefing, Democratic Floor Leader Sen. Jay Costa and I held a news briefing to explain to our reaction to the mid-year details.

2011-12 Budget Challenges

Over the past few years, the state relied heavily on federal stimulus funds and other one-time revenue generators to stay afloat during the aptly-named “Great Recession.” Unfortunately, those funding streams have dried up and the legislature now faces a projected $5 billion gap in the state budget.

The 2011-12 budget must absorb the loss of $2.7 billion in federal stimulus funds and $1 billion in one-time revenues.

The effects of the recession also continue to spur a higher demand for safety net programs, forcing the state to put up an additional $65 million. While Pennsylvania is still well above the national average in unemployment and has gained nearly 70,000 jobs this calendar year, the number of unemployment compensation claimants coupled with the higher rates the state is paying for these benefits has created a more than 3.1 billion dollar debt that Pennsylvania owes to the federal government.

Current Revenue

At the midway point, we have seen an encouraging 3.2 percent growth in state revenue and a positive return on our core tax receipts.

Through November, Sales and Use Tax collections are $71 million, or 2.1 percent above estimate, and corporate tax revenue is 8 percent, or $56 million above estimate.

The Budget and Philadelphia

Increased gaming receipts, particularly from the opening of the Sugarhouse Casino, will fund greater reductions in city wage tax rates. The current 3.928 percent wage tax rate for residents and 3.4985 percent rate for non-residents are projected to decline to 3.87 percent and 3.43 percent, respectively.

If Governor-elect Corbett has his way and we cut state funding by $4.5 billion to balance next year’s budget the result would likely be catastrophic for the city’s budget. This year the city’s $3.8 billion general fund budget relies upon $575 million in grant aid from the commonwealth.

A 16 percent cut, as advocated by the Governor-elect, would result in a loss of nearly $100 million in aid to the city and could mean cuts of twice that magnitude for the school district.

The Road Ahead

Some combination of new revenues, spending cuts and growth from existing taxes will be needed to replace the $3.7 billion in one-time revenues that were used to help balance the current 2010-11 budget. We have to remember that there are real people behind the numbers and the impact of the cuts must be taken into consideration.

At the mid-year point, the upcoming 2011-12 budget holds a frightening challenge for all legislators and we need to pull out the scalpel and determine which state-funded programs are working, and which are not.

Click here to download the Mid-Year Budget Briefing.

 

www.senatorhughes.com