How Corbett can Balance the Budget without Raising Taxes

This Commentary first appeared in the Philadelphia Inquirer on January 16.

Even before Gov.-elect Tom Corbett raises his right hand high Tuesday swearing to tackle the problems left from the previous administration's tax-borrow-and-spend agenda, doubters are lining up to take potshots at the notion that Harrisburg can close Pennsylvania's a potential $5 billion budget gap without a tax increase.

It seems that the scoffers have only further steeled the new governor to keep his promise to not raise taxes. That's good news considering all the opportunities to save taxpayers money by privatizing the government liquor stores, tackling welfare fraud and abuse, eliminating government competition with free enterprise, ending corporate welfare, and reforming prevailing wage laws.

Without doubt, Corbett and the General Assembly need to examine and prioritize all of these programs, which annually cost taxpayers $66 billion. (Most of the debate in past years focused only on a fraction of this spending known as the General Fund, currently $28 billion.) The total operating budget is $21 billion higher than when Gov. Rendell took office.  That's why an objective look into the budget reveals how easily Corbett can cut $5 billion and more without compromising on the core functions of state government.

For starters, Corbett and the General Assembly should eliminate "corporate welfare."  Pennsylvania spends nearly $1 billion per year on economic development programs, and more on tax credits for select industries.  According to data collected by the Council for Community and Economic Research, Pennsylvania awards more incentives annually than any state but Ohio. 

In fact, even in his last days, Gov. Rendell continues to give bailouts to floundering companies and "Friends of Ed".  But these subsidies have failed to generate the promised economic benefits: The commonwealth continually lags the nation in income, job and population growth. Subsidizing politically-selected companies forces everyone else to pay higher taxes.

Eliminating "yellow pages" government-state-operated businesses that compete with the private sector-would trim the budget another $600 million.  The Pennsylvania Higher Education Assistance Agency (PHEAA), which competes directly with private loan providers, is one major option for privatization.  State parks and museums can be leased to private operators, a solution used by other states and the National Park Service, to reduce costs and even make money.

One operation ripe for privatization is the state liquor stores. A proposal by State Rep. Mike Turzai to sell off the state store inventory and issue 750 retail and 100 wholesale licenses would net an estimated $1.7 billion up front (Turzai projects $2 billion, while Gov. Rendell pegs the value at $1.5 billion).  The state would very likely collect more in liquor and other taxes than the meager $90 million "profit" the government-run system produces. 

More than $400 million from wine and liquor taxes would still be collected in a system similar to what is found in 48 other states. Even better news is the evidence that privatization does not lead to higher rates of drunken driving or underage drinking; rather, it allows the Liquor Control Board to get out of selling and marketing alcohol, and focus on its primary mission of enforcing liquor laws.

As Corbett talked about on the campaign trail, reducing fraud and abuse in welfare, particularly Medicaid, must be a priority. Based on audits from Auditor General Jack Wagner, payments to ineligible recipients and other fraud cost the state more than $1 billion. Replacing the Medicaid system with credits for recipients to purchase private insurance would produce additional savings, more choice of doctors, and better services for enrollees.

Reforming prevailing wage mandates on public construction projects would also save taxpayer money. These special-interest laws require taxpayers to pay upward of 30 percent more in labor costs than the same work performed in private-sector construction. Allowing government contractors (i.e., taxpayers) to pay the market wage would save the state a projected $1 billion-not to mention savings for school districts and local governments.

These reforms alone would balance the budget, but there are many other avenues Corbett should explore:

• Long-term-care reform in Medicaid-encouraging those with greater income and wealth to buy private insurance rather than relying on taxpayer subsidies-could save the state billions.
• Expanding school choice options, which cost less than the average $13,000 Pennsylvania taxpayers spend per public school student, could save $500 million.
• A number of reforms to provide lower-cost alternatives to prison without jeopardizing public safety, like those adopted in Texas and Hawaii, could reduce spending by hundreds of millions each year, and eliminate the need to build costly prisons.

Corbett will find Penn's Woods dark and deep in red ink. But Pennsylvania families know full well they cannot spend what they don't have-and they are demanding that budget decisions in Harrisburg reflect that reality. We, our children, and our grandchildren, can't afford him to fail us.

# # #

 Matthew J. Brouillette is president and CEO of the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.