Déjà vu All Over Again: Mid-year Cuts and a Budget Shortfall on Tap for 2012

Governor Tom Corbett will announce a new budgetary freeze before the end of the year to help resolve what the administration expects to be a $500 million revenue shortfall, according to Budget Secretary Charles Zogby, who gave the annual mid-year budget briefing on Tuesday. 

Secretary Zogby painted a grim picture, as expected. The current revenue shortfall of $345 million could grow even beyond the $500 million current estimate, according to Zogby, and growth in mandatory spending for pensions, debt service and the Department of Public Welfare (DPW) will contribute to a budget for 2012-13 that is short about $750 million.

The Commonwealth plans to resolve the revenue gap with additional cuts. The secretary did not anticipate having "any revenue options" on the table and said he would look for further cuts in "waste, fraud and abuse" in DPW, controlling growth in corrections spending, and scaling back capital spending to make up the difference.

He did acknowledge that the Governor would rather reduce prisons than schools or higher ed and that making cuts was not something the administration relishes — suggesting that the work advocates have done this year may be penetrating.

In a nutshell, the persistently anemic economy is hurting tax collections, and growth in 2012 will be lower than previously estimated, making the 2012-13 budget more difficult than one would expect coming out of a recession.

Secretary Zogby rightly identified areas of built-in growth that will contribute to a structural budget deficit moving forward.

His analysis failed to mention how much tax cuts, both enacted and planned, will contribute to the short- and long-term problem. For example, the administration has likely under-estimated the cost of the 100% bonus depreciation policy enacted in January, contributing to the lower-than-expected corporate tax collections. (This policy allowed corporate taxpayers in 2011 to deduct 100% of a capital expense up front, instead of stretching it out over a period of years.)

The Governor's budget guidance issued earlier this year called for $400 million more in tax cuts, which could contribute to more than half of the expected gap for 2012-13.

The budget presentation confirmed that Pennsylvania ended 2010-11 with a $1.1 billion surplus and expected to end the current year with $558 million. The revised outlook calls for $100 million to be cut from current year expenditures and $400 million of the surplus to be used, leaving a $168 million year-end balance.

Pennsylvania has been holding the line on spending. Many departments and agencies are being funded at 2007-08 levels or less — and that was before Tom Corbett became governor.

What we haven't done is to hold the line on tax cuts. That will be the challenge for 2012.

Looking for more of my take on the mid-year briefing? Read a media statement I put out earlier today.

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