Wolf heads into last budget season with flush state coffers

Pennsylvania is sitting on a fat budget reserve, a healthy and growing surplus, and billions in unspent federal coronavirus relief cash.

Democratic Gov. Tom Wolf, about to deliver his eighth and final state budget proposal to lawmakers, says Pennsylvania’s flush accounts make this a “magical year” in “budget surplus territory” that won’t require higher taxes or spending cuts.

“Things are doing really well, we had a nice surplus at the end of last year,” Wolf said Monday, hours after his Revenue Department announced the state took in $464 million more than had been projected last month.

Collections for the current July-to-June budget year are now $1.5 billion above expectations, or 7%, largely driven by better-than-expected sales, personal income, and corporate tax payments.

The governor’s annual budget address is scheduled for Feb. 8 and will be followed by weeks of hearings by the appropriations committees in the House and Senate. Normally, arm wrestling between the governor and Legislature over the budget gets done in June, with passage shortly before or after Pennsylvania’s next fiscal year begins July 1.

There’s much that can go awry — in Wolf’s first year, he vetoed billions from a budget that was passed months late, then let the final piece of what was a roughly $30 billion spending package take effect without his signature.

Negotiators hope this year’s talks won’t go down to the wire. For one thing, they shouldn’t have to wait and see how the final June tax collections come in before deciding what they can afford to fund.

“At the top of my list continues to be education,” Wolf said, and he wants the new money to be divided under a “fair funding” formula designed to distribute state subsidies in an equitable way.

“I’m looking at unpaid bills, and I think the unfunded portion of the fair funding formula is, to me, an unpaid bill,” Wolf said.

Wolf’s administration calculates that spending on K-12 education, including special education, as well as pre-kindergarten and Head Start, has grown by $1.8 billion during his tenure.

Wolf and Republican leaders both say that more money for schools in the 2022-23 budget is a safe bet.

“Given our cash position, it is likely we will be open to additional investments in our schools, no doubt,” said Senate Appropriations Chairman Pat Browne, R-Lehigh.

Looking ahead, however, Republican and Democratic leaders see a different future for the state.

Browne said he is worried about projections of growing costs and long-term demographic trends that point toward an older population with ever-increasing needs for health care and other services.

“Every dollar that we decide to spend on other things will make that ‘out year’ problem bigger,” Browne said.

Wolf said Pennsylvania’s comparatively lower cost of living, high-tech sector and quality college and universities point in a positive direction.

“I think we have to be careful about looking at the way things have been for the last 20 years and saying, ‘That’s the way they’re always going to be,’” Wolf said. “I think the demographic future for Pennsylvania is going to different than its past.”

A confluence of factors has left Pennsylvania in the unusual position of having more money than necessary to simply maintain existing programs.

This year’s $40 billion state budget included about $300 million in new spending for public schools, including $100 million Wolf had sought specifically for Pennsylvania’s poorest public schools.

It keeps in reserve some of the Pennsylvania’s $7.3 billion from the American Rescue Plan signed by President Joe Biden last March, and House Democrats say some $2.7 billion in fiscal recovery funds have not yet been appropriated.

The state’s separate rainy day fund — which had become effectively nonexistent until a few years ago — now has a balance of more than $2.8 billion.

One Democratic budget negotiator says he sees a chance to put the state on a more sustainable financial path, help the business sector grow and address the state’s evolving demographics.

“There’s a window here, there’s dollars available, there’s recurring revenue,” said Rep. Matt Bradford of Montgomery County, the ranking Democrat on the House Appropriations Committee. “That’s my concern, that we miss the opportunity.”