AIA Pennsylvania e-Architect Update: February 2010

Pennsylvania State Budget 2011-2012

The 2010-11 budget ended with the Pennsylvania legislature passing a $28.05 billion spending plan on June 30, 2010, marking the first time in eight years that the legislative branch met its fiscal deadline. Gov. Ed Rendell signed the budget into law on July 6, 2010, after a dispute regarding the establishment of an Independent Financial Office which left the state to start FY 2011 without a budget.

The state was facing a $250 million budget shortfall when Congress passed H.R. 1586, a $26 billion plan to give states money for Medicaid and education that President Barack Obama signed into law on August 10, 2010. Pennsylvania received approximately $1 billion total, with $668 million to help pay for Medicaid and $387.8 million to save K-12 education jobs. The funding was less than the state had budgeted, leaving Pennsylvania with a $280 million hole and Rendell called for additional budget cuts.

Pennsylvania currently has a total state debt of $41,844,487,003 when calculated by adding the total of outstanding debt, pension and the unemployment trust funds. Three months into FY 2011, Pennsylvania's overall general fund revenue is running $76 million above projections.

On March 8, 2011, Gov. Tom Corbett will deliver his first budget address to the General Assembly. The focus of Corbett's address will be to cut spending without raising taxes. Look for the emphasis to be on the Departments of Public Welfare, Education and Environmental Protection, as well as a particular focus on the privatization of the state liquor store system.

First, the Department of Public Welfare draws $8 billion in state funds and is the main cost driver in the general fund after education. Based on audits from Auditor General Jack Wagner showing payments to ineligible recipients and other fraud costing the state more than $1 billion, Corbett will focus on reducing fraud and abuse in welfare, particularly Medicaid. Replacing the Medicaid system with credits for recipients to purchase private insurance which he argues will produce additional savings, more choice of doctors, and better services for enrollees.

Next, the Department of Education: The basic education budget will be faced with a funding loss because of the loss of stimulus dollars. Currently, $650 million of the state's $5.8 billion basic education subsidy is funded by State Fiscal Stabilization Funds that will not be available starting in 2011-12. Corbett will be limited in how deeply he can cut education because of mandatory pension costs and property tax hike caps on local school boards.

Finally, Corbett wants to privatize Pennsylvania's state-run liquor store system of 625 retail stores. Internal state audits have estimates suggesting that the system could fetch as much as $1.7 billion. This debate has been around for a long time and is expected to be highly debated by both sides of the aisle.

All of this is compounded by the fact that the first budget will set the tone for the new administration as well as new leadership in both the House and Senate. This unknown fact could mean more gridlock and less reform.