Third and State

Pennsylvania's new Budget Secretary Charles Zogby trotted out a familiar line at the Pennsylvania Press Club luncheon on Monday when he proclaimed that Pennsylvania "doesn't have a revenue problem, it has a spending problem."

Might Secretary Zogby be reading the wrong side of the ledger? Or do Republican Governors Haley Barbour of Mississippi, Mitch Daniels of Indiana, and Rick Perry of Texas (to name just a few) have spending problems too? After all, each of those states is facing budget woes in the wake of the Great Recession.

Actually, nearly every state in the nation is facing budget woes this year thanks to a recession-driven decline in revenue collections. So it is a revenue problem.

But don't take our word for it. The Nelson A. Rockefeller Institute of Government at the University of Albany undertook a review of tax collection figures for all 50 states and found that, much like the rest of the nation, Pennsylvania’s tax revenue plummeted as the recession dragged on.

Let's delve deeper. Most states, like Pennsylvania, rely on sales taxes as a major revenue source. Immediately after the “official” end of the Great Recession in June 2009, sales tax collections continued to dip, but have since began to bounce back. Compared to the U.S. average, Pennsylvania experienced a longer, somewhat less severe downturn in sales tax revenue due to the recession, and in the current year, the state’s coffers have been buoyed by stronger than expected sales tax receipts.

Personal income taxes — the biggest revenue producer for Pennsylvania and many other states — hit their lowest point at the end of 2009-10. Since then, income tax collections have made noticeable improvements, although they are still less than they were before the recession. While Pennsylvania did not experience income tax declines as deep as the national average, it is unlikely to see gains as big as the rest of the nation can expect. This will make it more difficult for Pennsylvania to generate enough revenue to offset the loss of federal recovery funds in the next budget — funds that helped the states bridge the fiscal abyss from 2008-09 to the current year.

Clearly, Pennsylvania’s fiscal woes are not driven by overspending, but as Secretary Zogby noted in his Press Club remarks, deep cuts are on the way.

Governor Corbett and the Legislature would be wise to take a more balanced approach to these challenges — one that includes new revenue as well as budget savings. Our economy can't afford the type of cuts to schools, public health care, infrastructure and job training that a cuts-only approach will require.

As Pennsylvania Budget and Policy Center Director Sharon Ward put it into today's Patriot-News (print edition only): "What we need is a budget that looks forward rather than backwards. The economy is on the mend. It's like a wound, and it's scabbed over, and it's starting to heal. My worry is this budget is going to reopen the wound. Spending cuts will lead to a loss of jobs and that will make it harder to come out of this recession in a robust way rather than easier."