Promising Budget Reforms on the Horizon

Pennsylvania’s latest budget impasse exposed a dysfunctional state budget process. Several members of the House of Representatives have introduced a package of reforms to correct the myriad of problems contributing to the dysfunction.

The changes include greater transparency, closing loopholes to the balanced budget requirement and limits on the executive branch’s use of lapses (unspent funds).

While all of the recommendations could improve the budget process, three are critical.

1) Prohibit an unbalanced state budget from becoming law: The state constitution requires a balanced budget. But state officials have used a legal loophole to ignore this requirement. The governor must sign an official revenue estimate no later than the time he signs a general appropriations (GA) bill. If the GA bill’s spending exceeds the official revenue estimate, the governor has to veto spending to bring the budget into balance.

However, the last two unbalanced GA bills to become law because Gov. Wolf withheld his signature. Because he abstained from signing the GA bill, he did not sign an official revenue estimate. With no official estimate, he was technically not required to veto spending to balance the budget.

Under a new proposal, the governor would be required to sign a revenue estimate even if he does not sign the appropriations bill. If total spending in a GA bill exceeded the official revenue estimate, the secretary of the budget would be required to place spending in reserve to balance the budget.

2) Ensure a balanced budget in the event of a revenue shortfall: In 2016-17, revenue projections consistently failed to meet expectations. Combine this shortfall with Gov. Wolf’s overspending, and the result was a massive deficit to end the fiscal year.

To avoid a similar situation, lawmakers would require the budget secretary to assess the financial health of the state in December. If the secretary determines revenues are falling short of official estimates, the secretary would be required to put an equivalent amount of revenue in reserve to avoid a deficit. After December, the secretary would be required to make monthly revenue assessments and adjust the level of funds in reserve to match spending with revenues.

3) Increase disclosure of information relating to special funds: The debate over special funds—also known as the “shadow budget”—kicked into high gear during the 2017 budget impasse. Lawmakers offered a plan to balance the budget by utilizing more than $1.2 billion from the shadow budget. The proposal was eventually scaled down to $300 million, but even this concession represents a step forward for fiscal responsibility and transparency.

Now, lawmakers are aiming to shine a light on the shadow budget again by requiring the administration to issue quarterly reports for money committed and awarded from special funds used to provide grants and subsidies. The reports would provide lawmakers with a better idea of how the state’s shadow budget funds work, and give them the tools necessary to exercise proper oversight over these funds.

These proposals are a promising step for working people harmed by Pennsylvania’s overspending habits. In the coming weeks, CF will be adding to these ideas to further improve the budget process and protect taxpayers from a third straight year of tax increases.