Democratic Gov. Tom Wolf addressed lawmakers earlier this week, unveiling a budget proposal that calls for more state spending than ever before. His speech officially marked the start of months-long negotiations.
The governor wants the Republican-controlled legislature to approve a whopping $43.7 billion to pay the state’s bills and increase what Pennsylvania spends on things like education, child care, environmental protection, state agencies, and more.
Here’s a line-by-line breakdown of what Wolf is asking for each state department this year.
If approved, the overall increase would be just shy of $4 billion over what lawmakers green-lit last summer, not including the more than $1 billion in emergency COVID-19 pandemic relief money.
Why the big increase?
The outgoing governor is reaching for the big bucks in his final year in office. During his eighth and final budget address Tuesday, Wolf justified his request to lawmakers.
“We’re no longer digging out of a hole,” he said. “We’re ready to build and this year’s budget does exactly that.”
The “hole” Wolf referenced is the structural budget deficit Pennsylvania had faced in the years before the Democrat took office in 2014 and during the early years of his administration. It was not unusual for lawmakers to approve a spending plan that failed to pay several billion dollars worth of bills. Emergency spending reserves in an account known as the Rainy Day Fund were almost non-existent.
By contrast, the state Treasury is now brimming with cash.
Thanks to strong consumer spending in the last year, the commonwealth wound up with $1.8 billion more-than-expected in tax revenue, as of this month. Even more is expected as Pennsylvanians begin submitting their yearly income tax filings.
Adding to the state’s current financial strength is the nearly $2.2 billion in American Rescue Plan money from the federal government. Wolf would like to use most of it by next June. The U.S. Treasury initially sent Pennsylvania more than $7 billion under the program and says all funds must be spent by 2024. Plus, another $2.9 billion is now tucked away in the Rainy Day Fund.
That’s why the governor and his Democratic allies see the coming fiscal year as an opportunity. Wolf wants to give K-12 public schools and special education programs a combined $1.55 billion. The figure, if it holds, would be the biggest increase in education spending in the state’s history. Here’s what each school district would get under his plan.
“Refusing to fund education equitably simply does not save us money,” Wolf said. “It just means we wind up spending more on other things: social services, remedial programs, even prisons.”
How are Republicans processing Wolf’s plan?
Over the years, the governor has managed to get Republican lawmakers to agree to smaller basic education funding increases, like $300 million last year. As they began digesting what Wolf’s ask, one key GOP budget maker said he isn’t on board with the amount. But he’s also not saying “no” to the concept of larger education spending.
“I think we have to be more careful than spending those kinds of dollars [$1.25 billion for basic education] one time and leaving the (incoming) governor with a major problem,” Rep. Stan Saylor (R-York) said. “But, we’re definitely going to see an increase in school education funding. I just don’t know what that amount is yet.”
Saylor chairs the powerful House Appropriations Committee. He and other Republicans, like Senate Appropriations Committee Chairman Sen. Pat Browne (R-Lehigh County), argue a big increase now could lock in bigger spending down the road. To them, it’s an approach that may not be sustainable.
“Are we going to manage state and federal resources to maintain a balanced fiscal position, or are we going to empty the piggy bank and leave a huge challenge for the next administration?” Browne said during a post-budget address news conference.
State fiscal watchdog predictions
The Republican stance isn’t coming from out of nowhere. The Independent Fiscal Office, the state’s nonpartisan financial watchdog, said in November that Pennsylvania is on track to wind up with a “substantial” $5 billion surplus by this June. Much of it includes nearly $4 billion worth of American Rescue Plan money the state gave itself as a way to make up for lost revenue during the pandemic.
Wolf estimates the surplus could be even higher by then. His budget office calculates if his entire proposed spending plan is approved, Pennsylvania could still have more than $3 billion left over by June of 2023.
Part of the calculation has to do with the federal government paying a larger share of the state’s healthcare bills right now, due to COVID-19.. As a result, Wolf’s budget office declared in a briefing document that the state over-budgeted for health and human services expenses by a little over $1 billion.
But Independent Fiscal Office Director Matthew Knittel said the extra help is probably going away soon.
“Once you remove those [monies], we revert back somewhat to the path we were on previously,” he said.
That means the state could face as much as a $1.8 billion deficit by June of 2024. House Republicans estimate if lawmakers approve Wolf’s full $43.7 billion budget proposal, expenses may eclipse the amount of tax revenue the IFO is forecasting the commonwealth will bring in as early as next year.
The scenario painted in the IFO analysis could change if Pennsylvanians keep spending and paying state taxes in large doses. Wolf says he believes that will be the case. But according to the IFO, key economic trends could tamp down the outgoing governor’s expectations.
Not only are the price of goods climbing, fewer people are working – even though the unemployment rate has dropped back to pre-pandemic levels. Around 60 percent of the state’s population is working right now, according to the Bureau of Labor Statistics. Knittel notes the worker participation rate hasn’t been this low since the mid 1980s, when Ronald Reagan was president.
“The labor force is contracting, and that’s causing various pressures not only on the revenue side, but on the aging population that has more demand on long-term care and Medicaid resources,” he said.
The Democratic view & what’s next
Democrats like state Sen. Amanda Cappelletti (Delaware) said sagging economic indicators help make the case to invest in things like education.
“How do you get a good economy? You make investments,” she said. “You make smart investments that are long-term and that’s what public education really does.”
State Rep. Matt Bradford (D-Montgomery), the Democratic chair of the House Appropriations committee, said Republicans shouldn’t be so quick to criticize Wolf if they haven’t prepared a counter proposal.
“What is their plan?” Bradford said. “Democrats…recognize that we need long-term investment in this Commonwealth.”
Wolf is trying to make larger spending ideas appetizing for Republicans, which is why he’s also offering to drop the corporate income tax rate. He is calling for it to be cut from just shy of 10 percent to eight percent this year. His office estimates the move would initially save businesses a collective $80 million.
Senate Majority Leader Kim Ward (R-Westmoreland) said she thought it was “positive” Wolf included the tax cut in his recommendations. She added she’ss at least willing to discuss the governor’s ideas.
“I really like the governor. We are friends. We don’t agree on much. But we somehow manage to work together,” Ward said.
Wolf says his administration is open to negotiations — and the potential reduction of his big plans.
“By all means, let’s argue over it. But in the end, let’s roll out an on-time budget that continues on the path we’ve traveled for the last seven years,” Wolf said as his budget address wrapped up.
Budget hearings start in the House on February 15 and a final budget must be approved and signed by July 1st.
