Pennsylvania has a surplus, and lots of budget patches, too

The rage in the state Capitol right now is the surplus that state government rolled up in the almost-ended fiscal year, helped by strong corporate and sales tax collections.

Pennsylvania Capitol in Harrisburg, Pa.

Shown is the Pennsylvania Capitol in Harrisburg, Pa. on the Wednesday, April 10, 2019. (Matt Rourke/AP Photo)

In Pennsylvania, good fiscal times may not necessarily mean good fiscal condition.

The rage in the state Capitol right now is the surplus that state government rolled up in the almost-ended fiscal year, helped by unexpectedly strong corporate and sales tax collections.

That news alone is fueling requests from a legion of lobbyists with pet projects, but the momentary surplus has not necessarily changed views from the outside that Pennsylvania is a state with tall fiscal challenges.

“They’re not surprising to anybody,” said Montgomery County Rep. Matt Bradford, the ranking Democrat on the House Appropriations Committee. “I think anybody who knows the numbers knows the challenges are there.”

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With the new fiscal year starting July 1, leaders of the Republican-controlled Legislature are drafting a counterproposal to Democratic Gov. Tom Wolf’s February proposal for a $34.1 billion budget plan.

Wolf is seeking roughly $2 billion more in spending, or 6 percent more, counting his more recent request for $750 million to cover cost overruns in the current fiscal year.

The surplus is expected to cover the current year’s costs, ease the passage of an on-time budget and leave a respectable sum to deposit into a budgetary reserve that is relatively bare after a string of persistent deficits going back to the recession a decade ago.

Such a deposit hits on a key criticism of credit rating agencies: that Pennsylvania lacks reserve cash.

In the meantime, Pennsylvania remains among the lowest-rated states by credit-rating agencies, which tend to be critical of the state’s budget management practices.

One zinger earlier this month from Moody’s pointed to Pennsylvania’s public transit funding arrangement that is scheduled to shrink from $450 million to $50 million in 2022.

“The state has the capacity to fill this gap, but has routinely shown little willingness to enact structural solutions to its own budget challenges,” Moody’s analysts said in a research note.

Equally concerning to some state officials is the Pennsylvania Turnpike Commission’s rising tolls and deepening debt to supply the $450 million each year.

Wolf acknowledged that the transit funding arrangement is unsustainable and must be solved. But he otherwise flatly dismissed any suggestion the state has trouble managing its finances.

“I wonder why we have a surplus?” Wolf said Friday.

Pennsylvania is enjoying a two-year stretch of strong revenue collections, in part due to several moves in recent years to extend the state sales tax to more online transactions.

Still, even with a surplus, the state’s finances are full of patches.

Heading into this year, the state still owed more than $80 million on a $100 million loan it took in 2002 from a government fund created to clean up underground fuel storage tanks, according to the Wolf administration.

In 2016, the state borrowed $165 million from a workers’ compensation insurance fund and hasn’t paid it back. It also is trying to wean a fast-rising state police budget off highway funds — currently, almost two-thirds of the state police’s $1.3 billion budget — after highway construction firms threatened to sue over the constitutionally questionable practice in 2016.

In the coming fiscal year, the state will start making payments on bonds it floated to backfill a roughly $2 billion deficit in 2017.

The state routinely masks its near-term costs by delaying a massive Medicaid payment to insurers or other contractors, and it plans to do that again.

The state also is entering its fourth year of trying to siphon $200 million from a state-chartered medical malpractice insurer of last resort, a move that’s been repeatedly blocked in federal courts.

Budget-makers may not negotiate a fix to every long-term fiscal problem this month.

But problems are not being ignored and finding fixes that are consistent and durable takes time in such a diverse state, House Appropriations Committee Chairman Stan Saylor said.

“We get the job done, and I think Pennsylvania will get it done,” said Saylor, R-York. “We’ve got to make sure that we don’t do things today that will hurt us in the future, and we’ve done that in the past.”

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