Saturday, October 25, 2014
Inquirer Daily News

Finally, some good news on the state budget?

Could there finally be light at the end of the state budget tunnel? That's the question we're asking since Gov. Ed Rendell announced that the projected budget deficit for the 2010-2011 fiscal year is only $53 million. That might sound like a lot of red ink, but it's nothing compared to the multibillion dollar gaps that have plagued the state for the past couple of years.

Finally, some good news on the state budget?

Could there finally be light at the end of the state budget tunnel? That's the question we're asking since Gov. Ed Rendell announced that the projected budget deficit for the 2010-2011 fiscal year is only $53 million. That might sound like a lot of red ink, but it's nothing compared to the multibillion dollar gaps that have plagued the state for the past couple of years.

The bulk of the good news comes from data on tax collections. According to the Department of Revenue, taxes are coming in about $14 million higher than originally estimated. The biggest increase is in corporate taxes, which are nearly 8 percent higher than was projected at the beginning of the year. The state sales tax is also bringing in about 2 percent more than expected.

This is a positive development and not just because it means state government could have more money. It's also a sign that the sluggish economy might finally be showing signs of real growth. The increase in corporate taxes means that companies are starting to become more profitable and that could lead to more hiring in the near future. And the increase in sales taxes means that people are finally spending again.

However, there is also some bad news. The personal income tax remains relatively flat, which means that people's incomes are still stagnant. The income tax is one of the biggest sources of revenue for state government, so the budget picture won't substantially improve until that starts to increase. And since sagging tax revenue is the biggest driver of the past few years of budget deficits, that's an incredibly important part of the state's overall recovery. And the fact that there is a mid-year deficit means that Rendell will likely have to take some kind of action to fill the hole.

So what does this mean for incoming Governor Tom Corbett? The $53 million figure is the current budget deficit, not next year when Corbett will be in the driver's seat. Thanks to a combination of factors-- including the stimulus funds running out and disappearance of other one time revenue sources-- the state will still face a big deficit in the next fiscal year, perhaps as high as $4 billion.

Still, the news that some tax revenue is coming in higher than expected could mean that Corbett will face less pressure to make deep cuts in state spending or find other ways to generate revenue, such as selling off the state liquor stores. That will make it easier for him to keep his campaign promise not to raise taxes.

Of course, if we've learned anything about government finances over the past year, it's that these things are very unpredictable. So, while there may be a light at the end of the tunnel, Pennsylvania is hardly out of the woods yet.

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About this blog
Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

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