Corbett's failed leadership puts Pennsylvania's economic future in danger
July 23, 2014 | By Mike Mikus, Senior Strategist
Earlier this week, Moody's Investment Service downgraded Pennsylvania's $11.1 billion general obligation bonds from Aa2 to Aa3 as a result of Governor Corbett's failed leadership and gimmick-ridden budget based on one-time revenues.
This bond downgrade -- the third in two years -- will not only make it more expensive for the state to borrow money, but it will also make it more expensive for public borrowers in the commonwealth, such as school districts, to borrow. This recent Aa3 rating makes Pennsylvania one of the top-six worst states out of the 47 states with general obligation debt in Moody's ratings.
Instead of following through on his promise to restore fiscal responsibility, Corbett's governing has been a complete failure. Before Corbett took office, Pennsylvania was one of the top states in job growth. But since Corbett became governor, Pennsylvania's economy has struggled. The commonwealth has consistently ranked at the bottom in job creation since 2011.
The recent credit downgrade is more proof that Corbett's time is office has been a failure. Specifically, it highlights Corbett's useless pension plan, the economic harm his gimmick-based budgets have already caused, and his failure to work with legislators on both sides of the aisle to consider common sense, popular solutions to the commonwealth's budget deficit.
Corbett's Gimmick-Based Budget
Instead of enacting a five percent severance tax on natural gas, closing tax loopholes, or expanding Medicaid, Corbett signed a budget that is based on a precedent-setting $2 billion in one-time revenues, which could result in serious problems for Pennsylvania's financial future.
Hundreds of millions of dollars that are built into this budget are based on shaky revenue sources that may not even materialize and an increase in the state's tax collections that exceeds the projections of the Independent Fiscal Office. This type of smoke-and-mirrors budget is unacceptable, especially since there are a variety of more stable budget solutions.
Associated Press: "One-time items well in excess of $2 billion will be required to prop up a budget of $29 billion without a tax increase for the 2014-15 fiscal year that beginsTuesday. Those one-time items will probably include transfers from small business loan funds, a state forests and parks improvement program, lottery profits meant to enhance programs for the elderly and cash meant to fight tobacco addiction and cancer."
Patriot-News: "The revenue plan counts on the state's tax collections increasing by 3.5 percent after a year of negative revenue growth. That was the state Independent Fiscal Office's 2014-15 revenue projection in May, which downgraded that forecast to 3.2 percent earlier this month."
Patriot-News: "Beyond the rosier revenue forecast for tax collections, the proposed budget counts on getting $75 million from awarding two casino licenses, $95 million from leasing ground under state forestland for gas drilling, and $150 million from the state shortening the timeframe it holds on to dormant accounts and other assets. It also relies on making $40 million from changing the way the Department of Revenue interprets a tax that banks pay, $40 million from stepped-up revenue collection efforts by the revenue department, and using $1.3 million that by law was required to have been deposited into the state's Rainy Day Fund. But the bulk of the new revenue comes from raiding six different loan funds or accounts to the tune of $247 million. The largest of these transfers entails removing $100 million each from a loan fund targeted to small businesses with 100 or fewer employees and from a loan fund to buy machinery and equipment for businesses."
Corbett Refuses To Consider Common Sense Solutions
Governor Corbett refuses to support common sense solutions to close his massive budget deficit. Since Corbett and his Republican allies have received millions in campaign contributions from the oil and gas industry, he refuses to make them pay their fair share. Currently, Pennsylvania is the only gas-producing state without a severance tax. A five percent severance tax would generate an estimated $600 million in the first year and billions over time, but Corbett continues to put the interests of the oil and gas industry ahead of the needs of Pennsylvania's schools.
Another common sense solution Corbett refuses to consider is expanding Medicaid, which is supported by legislators on both sides of the aisle and could save the state hundreds of millions of dollars. Furthermore, closing tax loopholes would further stabilize Pennsylvania's budget. The Delaware Loophole alone cost Pennsylvania over $500 million in revenues last year.
Instead of looking to these common sense solutions that have bipartisan support, Corbett would rather base his budget on one-time revenue sources and gimmicks to appease big business, the oil and gas industry, and special interests.
Patriot News: "Democrats in the General Assembly were cut out of the budget negotiations when Gov. Tom Corbett and GOP legislative leaders opted against seeking any new taxes, and they vilified the plan in committee discussions Sunday night."
Associated Press: "And this year, with a massive and unexpected collapse in tax collections, Republicans have shied away from putting off business tax cuts or increasing taxes on the booming natural gas industry or sales of tobacco products advocated by Democrats. Instead, they have looked to push one-timers past $2 billion."
PA Budget and Policy Center: "A 5% severance tax would raise $600 million in 2014-15 and $1.4 billion annually by 2018-19. It is a recurring source of revenue that could reduce reliance on one-time changes, fund transfers, payment delays, and other strategies that are unsustainable over the long term."
Patriot-News: "MEDICAID EXPANSION: This would provide health insurance to about 500,000 uninsured people: $125 million to about $600 million -- depending on whether Pennsylvania immediately accepts the Obamacare version of the expansion, or waits for federal approval of Corbett's own version."
PA Budget and Policy Center: "Corporate tax loopholes are a problem at the state level, too. Large multi-state corporations like Wal-Mart and Home Depot use state tax loopholes to shift income earned in Pennsylvania to tax-haven states like Delaware, leaving little or no income on the books in the commonwealth. The Delaware Loophole alone costs Pennsylvania taxpayers $500 million a year."
Corbett's Useless Pension Plan
Governor Corbett has been traveling commonwealth preaching pension reform as the solution to rising property taxes. The problem? Even Corbett admits that the pension proposal he supports would not offer immediate savings or property tax relief. Not only would Corbett's pension plan do nothing to create short-term savings, it also would do nothing to reduce the unfunded liability. This means that Corbett's pension plan would not help to upgrade Pennsylvania's $11.1 billion general obligation bonds to our previous rating of Aa2.
Pittsburgh Tribune-Review: "Although [Corbett] conceded the pension proposal would do nothing to reduce the $50 billion unfunded liability the states' school- and state-employee pension funds accrued over 13 years of benefit increases, market losses and underfunding by the state, Corbett insisted it is a starting point to avoid additional liabilities."
WITF: "The governor has begun to acknowledge that the proposal in question would not generate short-term savings for the state or school districts, both of which are buckling under rising pension costs....Corbett is no longer pushing any particular proposal to reduce the current debt, which is the immediate source of rising pension costs for the state and school districts."
AP: "Corbett acknowledged that the bill he supports means no immediate savings."
WESA: "Corbett said the plan is not a 'silver bullet' and that change won't happen right away, but that 'in the art of politics and compromise, you have to go with the one that can get the most votes.'"
Capitolwire: "So when Corbett's critics argue he's being disingenuous with his claims that pension reform is necessary to head off pension cost-caused property tax hikes, they're right. Even Corbett, when pressed, agrees pension reforms for new employees won't produce immediate relief, but his press releases and public proclamations don't make such acknowledgements."