Lack of Severance Tax Threatens End-of-Year Balance
HARRISBURG, Pa., Dec. 16, 2010 /PRNewswire-USNewswire/ -- At the mid-point of Pennsylvania's fiscal year, revenue projections remain steady and its budget is in balance – except for the lack of $63 million in revenue from a severance tax on natural gas drilling that legislators had agreed to enact by October but did not, Governor Edward G. Rendell said today.
"Our revenue is coming in on-target and we have made necessary budget cuts across state government," Governor Rendell said. "The primary threat to ending the year with a balanced budget is the General Assembly's failure to enact a severance tax on natural gas extraction in the Marcellus Shale region, as legislators had pledged they would do.
"I believe our mid-year budget review is a conservative estimate," the Governor said. "I remain hopeful that revenue will continue to exceed expectations and – combined with the decisions we've made to freeze spending – the budget will come into balance."
Officials are projecting that revenues will end the year on estimate, the Governor said. Pennsylvania's investments in economic development, job training and education – combined with a commitment to efficiency and fiscal discipline that has made it possible to cut the cost of running state government by 14 percent since 2003 – have made Pennsylvania one of the most fiscally stable states in the nation.
The $28 billion 2010-11 enacted budget is $290 million less than the pre-recession 2008-09 enacted budget, and is just 0.7 percent higher than the 2009-10 budget, the Governor noted.
Because of decisions in Washington made after the state's 2010-11 budget was enacted, the commonwealth received $280 million less than anticipated in federal fiscal relief for Medical Assistance for the current fiscal year, he said.
In response, the Governor called for another round of budget cuts, including cuts to public schools and a 1.9 percent across-the-board reduction in discretionary spending by state government, resulting in $200 million in savings. All agencies under the Governor's control made the necessary cuts, as did the Treasury Department, the Attorney General, the Pennsylvania Higher Education Assistance Agency and the Pennsylvania Housing Finance Agency.
The commonwealth began the current fiscal year with a projected $12 million year-end surplus. Budget officials also identified $70 million in unused funds from prior years that can be used to offset the shortfall in the amount of anticipated federal funds, he said.
However, because the recession continues to hurt so many families, demand for safety net programs like Medical Assistance is higher than originally estimated – costing Pennsylvania an additional $65 million through June, the Governor said.
The post-enactment adjustments in spending and the additional cost pressures caused by the recession leave a $63 million projected shortfall in the current fiscal year. "That is, of course, the hole created by the legislature's failure to enact a severance tax," he said.
Governor Rendell's concern with controlling administrative spending dates to the beginning of his administration. When he took office in January 2003, he directed agencies to control their spending growth.
As a result, he said, "We cut the cost of running state government by 14 percent – meaning that we are spending less today on administrative costs than when I took office in 2003."
New management and productivity initiatives have resulted in annual savings of more than $1.75 billion, he said.
The size of the commonwealth workforce also has shrunk under Governor Rendell. There are now 4,875 fewer filled positions than in January 2003 – a decline of 6 percent to 76,782 employees. Pennsylvania has the second-lowest total number of state employees of the eight most populous states.
When the national financial crisis began in September 2008, the Governor took further decisive action to reduce administrative spending. These initiatives – which included a general hiring freeze, out-of-state travel restrictions, a reduction in the size of the commonwealth's vehicle fleet, and a freeze on cabinet and non-union employees' salaries – remain in place today.
"These actions were difficult but necessary to help the commonwealth continue its mission of providing essential services to Pennsylvania's citizens," the Governor said. "I appreciate the dedication of our commonwealth employees, who in the past several years have become expert at doing more with less."
Even as he was working to control spending, the Governor has also focused on making the investments necessary to get the state's economy back on track – such as helping businesses establish and expand in Pennsylvania, revitalizing communities, investing in schools and providing job training.
"While the economy is certainly not out of the woods yet, I am confident that the choices we've made – including prudent investments and reducing the cost of running government – are contributing to our economic recovery," he said.
Gary Tuma, Governor's Office; 717-783-1116
Susan Hooper, Office of the Budget; 717-265-8067
Editor's Note: To view the 2010-11 Mid-Year Budget Briefing presentation, visit the "Current and Proposed Commonwealth Budgets" section of the Office of the Budget website at www.budget.state.pa.us.
SOURCE Pennsylvania Office of the Governor