Monday, March 30, 2020

Senate, House, Governor Will Face Unprecedented Challenges In Putting Together The Next State Budget

There is no doubt the necessary shutdown of non-life-sustaining businesses, stay at home orders now covering 22 Pennsylvania counties and closing casinos and state liquor stores will have a significant negative impact on state and local revenues.
This at a time when people are applying for unemployment-- 650,000 from March 13 to March 25 alone-- and other public assistance programs in record numbers.  Read more here.
On March 23, Gov. Wolf imposed a freeze on state hiring and nonessential purchases unrelated to the coronavirus response with three months left in the fiscal year.  Read more here.
On March 29, Gov. Wolf took action to layoff about 2,500 part-time and seasonal state employees and interns in all agencies in response to worsening state revenues.  PennDOT and the Department of Revenue were immediately affected and other agencies, like DCNR, could be as well. Read more here.
PennDOT highway and transportation funding, in particular, is likely to be hit with a sharp decline in revenues..
On March 26, IHS Market, a global business analytical firm, said its analysis shows demand for gasoline in the United States could fall by more than 50 percent as a result of social isolation measures adopted by state and federal governments.
They said the size of the decline will be much greater than the impact of the 2008 recession and could be further protracted depending on how effective social distancing measures are at controlling the spread of the COVID-19 virus.
This will result in a significant hit to state highway and transportation revenues because Pennsylvania depends on per gallon gasoline taxes.
PennDOT was already facing a $2.5 billion annual shortfall to adequately fund interstate highway and bridge needs, in addition to a $1.2 billion public transit funding deficit.  Read more here.
In February, PennDOT announced it would be forced to shift $3.5 billion in funding from local road repairs to the interstate highway system to meet its federal obligations even before the COVID-19 outbreak. Read more here.
State lottery sales were starting to drop in March as a result of business closures.  The big multi-state lotteries like Powerball and Mega Millions are also cutting the size of their jackpots in the face of sales drop off.  BTW, the odds of winning are still the same-- long shot.  
Lottery officials are pushing their online games as an alternative, but revenues may still decline sharply.  Read more here.
The state lottery generated about $1 billion in revenue in 2019, with about 25 percent going to programs that benefit older Pennsylvanians.
The state-owned university system is also expected to take a $100 million hit because of refunds for student room and board payments.  Read more here.
Pushing the tax filing and payment dates back to July 15, while good for struggling taxpayers, will also mean a short-term cash-flow squeeze on the state because April is traditionally the biggest month in terms of revenue collections. Read more here.
When the Senate and House wrapped up budget hearings in early March, one of the biggest “surprises” was medical assistance costs in the current fiscal year were running ahead of estimates by not $500 million, but $800 million-- or so.  
Other programs were also running ahead of estimates by even more, meaning there is a structure deficit in FY 2019-20 of perhaps as much as $1.4 billion.  And those expenses will go up in the last three months of the current budget as more Pennsylvanians draw on those state services.
The Department of Corrections, another big driver of state budget increases, is also likely to see increased expenses for overtime and the steps they need to take to keep inmates and staff safe.
Those bills have to be paid before the new fiscal year even begins, so the state budget is already in a hole before the new fiscal year even begins July 1. Read more here.
           Of course, the one place there is a $172 million surplus is in the operating accounts of the Senate and House.  Maybe that could be put to good use for taxpayers, instead of sitting in the Senate and House bank accounts.
In short, the state and local revenue picture is ugly, uglier than after the 2008 recession and the recession following the September 11 attacks and states are already warning the emergency funding in the latest federal stimulus package is not enough.  Read more here.
The General Assembly and Governors have been jerry-rigging state budgets for years in relatively good times that kept transferring money from one pocket to another or balanced with one-time gimmicks, deliberately underestimating spending for big programs like medical assistance, relying on expanded gambling and liquor sales to bring in more money and borrowing huge amounts of money-- $1.5 billion in 2017 alone-- to make the state budget balance.
This will get ugly. And there will be real questions about whether some programs will survive or be able to function and be effective in this new budgeting environment.  Read more here.
[Posted: March 30, 2020]

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