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Commonwealth Forum

Addressing Pennsylvania’s Structural Budget Deficit

In November 2016 Pennsylvania’s Independent Fiscal Office released a five-year 
projection of the health of the Commonwealth’s economy and budget. The long-
term estimates were not promising, as increasing expenditures outstripped exist-
ing sources of revenues. Left unchanged, the status quo would result in a deficit of 
almost $3 billion in fiscal year 2021–2022. Tackling this “structural deficit” is one 
of the most difficult issues facing the state of Pennsylvania. Given the current po-
litical climate, it should come as no surprise that there is no consensus on resolv-
ing this problem. Commonwealth invited representatives from two very different 
policy perspectives to provide their solutions to the structural deficit. We would 
like to thank Bob Dick of the Commonwealth Foundation and Marc Stier of the 
Pennsylvania Budget and Policy Center for addressing this important issue in the 
Commonwealth Forum.

Revitalizing Pennsylvania through Government Reform
Bob Dick

Pennsylvania is in financial crisis. The growth in government spend-
ing, which has risen every year but one since 1970 (Commonwealth 
Foundation 2016), is at the heart of this crisis. As of July 2017, the 

Commonwealth’s budget deficit is approximately $2.2 billion (Levy 2017b)—
a product of real and projected expenditures exceeding revenues in prior and 



68 Chapter 4

current fiscal years. Pennsylvania’s Independent Fiscal Office (IFO 2016) 
projects this trend will continue through the 2021–2022 fiscal year absent 
significant policy changes (Ryan 2017).

The IFO isn’t the only organization with a bleak view of the state’s budget 
situation. The Mercatus Center recently released a report on the fiscal health 
of all fifty states, ranking them based on key metrics used to analyze short- 
and long-term solvency (Norcross and Gonzalez 2016). Pennsylvania placed 
forty-sixth, beating four other states, including Illinois and New Jersey—
states beset with monumental financial challenges.

Standard and Poor’s has also expressed concerns about Pennsylvania’s 
fiscal condition, warning that unless the state passes a balanced budget and 
addresses the underlying causes of the structural budget deficit, it faces a 
possible credit rating downgrade (Braun 2017). These warnings concern 
most everyone, but policy makers are divided over the solution. Some believe 
raising taxes is necessary to fix Pennsylvania’s finances. The most prominent 
and vocal advocate of this idea is Governor Tom Wolf, who has proposed 
eight different tax hike plans over the course of three years (Commonwealth 
Foundation 2017b). His last budget proposal would have raised taxes by 
$1 billion while making modest reforms to control state spending (Pennsyl-
vania Office of the Budget 2017).

In contrast, many fiscally conservative lawmakers prefer spending re-
straint in the General Fund budget—which makes up approximately 40 per-
cent of the state’s total operating budget—and reforms to bring about long-
term fiscal stability. In April, House Republicans passed a General Fund 
budget that would have limited spending growth and required no tax hikes 
(Dick 2017a). The state Senate eventually amended the plan to include a 
larger spending increase. Governor Wolf allowed this plan to become law, 
despite lawmakers’ inability to raise enough revenue to balance the budget 
as of July 2017 (Couloumbis and Langley 2017). This is the second year in a 
row the state’s budget became law without sufficient revenues to pay for au-
thorized spending (Meyer 2017), though the move appears to violate legal 
and constitutional balanced budget mandates.

How should lawmakers solve these intractable fiscal problems? First, 
they must reject tax increases, which stifle economic growth and destabilize 
the state’s finances. Economic growth is key to turning the state’s budget 
situation around. Any policies that could suppress this growth should be 
rejected.

In testimony before the U.S. House of Representatives Committee on 
Ways and Means, economist Jonathan Williams compared job growth from 
March 2007 to March 2017 in states without an income tax to states with the 
highest income taxes. He found no-income-tax states grew 28 percent faster 
than the highest-income-tax states. Population also grew 111 percent faster 
in no-income-tax states (Williams 2017). These findings are not an aberra-



The Budget 69

tion. William McBride authored a report on the effects of taxes on economic 
growth, which included a literature review of twenty-six studies on this 
topic—all but three of which concluded taxes negatively affect economic 
growth (McBride 2012).

Advocates of a more robust role for government see high taxes as a pan-
acea, but a high tax burden can harm a state’s finances and economy (Stan-
sel, Torra, and McMahon 2016). Indeed, the ten states in the best fiscal 
 condition—per the above-noted Mercatus Center report—had an average tax 
burden of 8.48 percent compared to 10.12 percent for the ten states in the 
worst fiscal condition (Tax Foundation 2012).

Some of the highest-taxed states in the country—Maryland, Illinois, and 
New Jersey—are in the worst fiscal shape, proof that high taxes won’t bring 
budget relief and will likely exacerbate budget difficulties. Two recent ex-
amples illustrate this fact. The first is Connecticut. To deal with budget defi-
cits, the state—over five years—enacted the two largest tax increases in its 
history (Fitch 2017). However, these increases could not keep up with spend-
ing growth, and lawmakers are now grappling with a $5.1 billion deficit (De 
Avila 2017).

In Pennsylvania, lawmakers enacted a $650 million tax increase package 
in July 2016 (Levy 2017a) to pay—in part—for a tremendous increase in gov-
ernment spending. It wasn’t enough. The state ended the fiscal year with a 
$1.5–$1.6 billion deficit (Esack 2017). The tax not only failed to stabilize the 
Commonwealth’s budget situation; it also closed dozens of small businesses 
(Gonzalez 2017). These regrettable examples of counterproductive fiscal pol-
icy should serve as a warning to policy makers as they grapple with the tough 
decisions needed to rescue Pennsylvania from financial ruin. Policy makers 
can either let the economy grow or grow government. They can’t do both.

Since tax hikes aren’t a viable solution, policy makers must focus on the 
spending side of Pennsylvania’s balance sheet. Critics of this approach tend 
to assert state government is cut to the bone, which means lawmakers have 
very few options—if any—to reduce government outlays. But a thorough 
review of the state’s total operating budget reveals numerous cost-saving 
opportunities. The following six broad solutions are not exhaustive but rep-
resent some of the most transformative options available to lawmakers.

Reform Medicaid to Encourage Independence

The Pennsylvania Department of Human Services (DHS), which houses most 
welfare programs, consumes approximately 39 percent of the General Fund 
budget (Pennsylvania House Republican Appropriations Committee 2017). 
It is the most expensive department in the total operating budget (which in-
cludes federal funds and other “off budget” funding). According to the IFO, 
welfare spending will grow at 5.8 percent annually. In contrast, personal  



70 Chapter 4

income growth will be just 4.3 percent (IFO 2016). If these trends are left 
unchecked, DHS will continue to outgrow the economy, requiring additional 
resources from taxpayers, who already labor under the fifteenth-highest tax 
burden in the country (Tax Foundation 2016). Any effort to tackle the current 
fiscal crisis must focus on reducing poverty by redesigning the state’s welfare 
programs—specifically Medicaid, the largest expense in the state budget.

Lawmakers can reform Medicaid—a program that consistently under-
serves the poor (Coleman 2015)—by converting it to a premium assistance 
support program. This would put Medicaid recipients in charge of purchas-
ing their own health insurance with allotted funds. State lawmakers have 
also advanced work requirements and copays for able-bodied adults and 
wealthy families (Thompson 2017). Work requirements combined with time 
limits on Medicaid can help able-bodied adults transition away from govern-
ment assistance and reduce lengthy waiting lists for those truly in need, 
without requiring new revenue.

Expand School Choice

In 2015–2016, the latest year for which data is available, the typical Pennsyl-
vania public school received approximately $16,500 per student in local, 
state, and federal funding. This represents a 16.5 percent increase over the 
past five years. Pennsylvania ranks in the top ten in education spending as 
of 2013–2014 (Commonwealth Foundation 2017c). Yet lawmakers increase 
education spending year after year under the unproven assumption that 
more spending improves academic achievement. Research, however, shows 
no correlation between academic achievement and education spending. 
Who spends these dollars, not simply how much is spent, is the real differ-
ence maker. If dollars are placed in the hands of parents via school choice 
programs, educational outcomes improve, and taxpayers save (Forster 2016).

Pennsylvania’s two private school choice programs—the Educational 
Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit 
(OSTC)—spend a fraction of what traditional public schools spend on a per-
student basis. In 2014–2015, average scholarship amounts for the EITC and 
OSTC were $1,775 and $2,300 respectively. Expanding these programs to 
more public school families would not only provide educational lifelines to 
thousands of students but also deliver cost savings for taxpayers. Of course, 
this requires a paradigm shift for those under the mistaken assumption that 
a large government bureaucracy is necessary to adequately educate students.

Overhaul the Criminal Justice System

At more than $2.3 billion, Pennsylvania’s corrections system is the third 
largest expense in the General Fund budget. Although it has undergone sig-



The Budget 71

nificant changes over the last five years, more reforms are necessary. A recent 
report from Justice Reinvestment Initiative (JRI) Working Group (2017) 
notes that the Commonwealth can save more than $108 million over five 
years by reducing the prison population via several changes to the criminal 
justice system, including but not limited to the following.

Release prisoners once their minimum sentence has been completed. Peo-
ple inside the state’s prison facilities are often held past their minimum sen-
tence—by an average of 5.3 months. This extra prison time costs taxpayers 
tens of millions of dollars and does little to reduce recidivism. Releasing 
prisoners on time can save tax dollars without jeopardizing public safety.

Increase guidance provided by sentencing guidelines. Current guidelines 
permit a wide range of sentences for the same crime, meaning sentences can 
be counterproductive or punitive. Providing judges with more information 
on the efficacy of sentences (i.e., which sentences lower recidivism) should be 
a top priority. This way, judges can issue fair sentences based on all relevant 
information. The current system relegates too many to prison unfairly, mak-
ing it more difficult for inmates to return to normal life.

Improve parole supervision. The JRI Working Group proposes adopting 
admission criteria for community corrections facilities (also known as half-
way houses) based on risk and parolees’ needs. The working group also sug-
gests using short sanctions instead of incarceration for parole violators. The 
former has proven effective in changing the behavior of violators and is a less 
expensive alternative to incarceration.

These recommendations focus on an important goal: transitioning peo-
ple from prison back to society while keeping low-risk offenders out of 
prison. A criminal justice system that promotes independence will help the 
Commonwealth reduce incarceration costs while freeing resources to ad-
dress more dangerous offenders who pose a threat to society.

Curtail State Borrowing

Debt service is the fourth largest state expense behind welfare, education, 
and corrections. Since 2002, total outstanding state general obligation debt 
has increased by 97 percent, from $6.8 billion to $12.3 billion. Annual debt 
payments on general obligation bonds increased from $349 million in FY 
2002–2003 to more than $1.1 billion in FY 2016–2017, a 218-percent jump 
(Commonwealth Foundation 2017a). This massive increase makes the De-
partment of Treasury the fastest growing department over the last fifteen 
years.

To avoid adding to taxpayers’ debt load, lawmakers should limit or elim-
inate borrowing for some of the state’s nonessential programs. Among these 
is the Redevelopment Assistance Capital Program (RACP), which authorizes 
wasteful “economic development” projects across the state. Some of the most 



72 Chapter 4

Figure 4.1 The Light of Liberty in the Pennsylvania Capitol Rotunda. (Source: Michelle J. 
Atherton.)

infamous projects have included monuments to politicians, handouts to cor-
porations, and subsidies for stadiums (Benefield 2010). There is no evidence 
of this program boosting overall economic growth in the Commonwealth. 
Moreover, the program tends to favor the largest Pennsylvania cities over 
smaller towns (Millsap 2015).



The Budget 73

A cap on borrowing for Public Improvement Projects (PIP) is also criti-
cal. Together, these two programs represent about 43 percent of gross debt 
service. Eventually phasing out RACP and putting strict limits on PIP can 
help drive down the cost curve on state debt, freeing funds for other priori-
ties such as law enforcement or tax relief.

Reduce or Eliminate Nonessential Spending

The Commonwealth Foundation recently identified more than $3 billion in 
available funds (Dick 2017b) that could be redirected to balance the state’s 
General Fund budget. These “off-budget” programs generally operate outside 
legislative scrutiny. They include corporate welfare programs—like nearly 
$250 million for the Race Horse Development Fund, which finances race 
purses (prizes) for horse owners—and more than $95 million for the Keystone 
Recreation, Park and Conservation Fund, which provides appropriations for 
recreational activities and facilities. This fund has financed projects such as an 
African Wild Dog Exhibit and an Athletic Fields Feasibility Study. This special 
interest spending is pervasive throughout the state budget and should be re-
duced or eliminated permanently. Redirecting these and other funds can pro-
vide a stable source of revenue to truly balance the state’s General Fund budget.

Enact Budget Safeguards

Too often, state spending is left unevaluated and grows without limit, to 
taxpayers’ detriment. Lawmakers can implement two safeguards to end 
Pennsylvania’s broken budget process. The first is performance-based bud-
geting, which would require an independent analysis of state programs to 
determine their effectiveness. If a program is deemed ineffective, based on 
certain objective criteria, it could be scheduled for elimination unless law-
makers vote to protect the program or reform it to address deficiencies. 
Performance-based budgeting would take at least a portion of state spending 
off autopilot and require periodic examination of programs. It would also 
increase accountability, requiring lawmakers to go on record as defending or 
reforming a given program.

State expenditure limits are the second safeguard. Under this proposal, 
state spending would not be permitted to grow faster than the combined rate 
of inflation and population growth—known as the Taxpayer Protection Act 
index. This proposal would require lawmakers to prioritize spending and 
ensure any surplus revenue is deposited in a rainy-day fund or used to reduce 
taxes. Had state spending limits been in place since 2003, taxpayers would 
have saved a cumulative $29.4 billion or $2,300 per person. Pennsylvania 
would also have ended the 2016–2017 fiscal year with an approximate $2 bil-
lion surplus.



74 Chapter 4

Elected officials on both sides of the political aisle mistakenly believe 
Pennsylvania has a revenue problem. This assumption has led to calls for 
higher taxes and borrowing to pay overdue bills. A closer look at the evi-
dence reveals a different story. The state has failed to control spending for the 
last four and a half decades. Policy makers in Harrisburg must acknowledge 
this truth. Only then can the state begin to repair its finances and implement 
pro-growth policies that will make Pennsylvania the economic hub of the 
Northeast.

Note
This article was previously published as “Commonwealth Forum: Addressing Pennsylva-
nia’s Structural Budget Deficit,” Commonwealth 20, no. 1 (2018). © 2018 The Pennsylva-
nia Political Science Association. ISSN 2469–7672 (online). http:// dx .doi .org/ 10 .15367/ com 
.v20i1 .177. All rights reserved.

RefeReNces
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Foundation, July 13. Available at https:// www .commonwealthfoundation .org/ 
issues/ detail/ the -real -problem -with -the -specter -library.

Braun, Martin Z. 2017. “S&P Tells Pennsylvania: Balance Budget or Face Rating Down-
grade.” Bloomberg, July 6. Available at https:// www .bloomberg .com/ news/ articles/ 
2017 -07 -06/ s -p -tells -pennsylvania -balance -budget -or -face -rating -downgrade.

Coleman, Kev. 2015. “Medicaid Acceptance by Healthcare Providers Drops to 1-out-
of-3.” HealthPocket, February 26. Available at https:// www .healthpocket .com/ 
healthcare -research/ infostat/ medicaid -acceptance -doctors -health -care -providers 
-2015.

Commonwealth Foundation. 2016. “Tracking State Budget Trends.” December 2. Avail-
able at https:// www .commonwealthfoundation .org/ issues/ detail/ tracking -state 
-budget -trends.

———. 2017a. “Policy Points: Pennsylvania’s Debt Burden.” June 15. Available at https:// 
www .commonwealthfoundation .org/ policyblog/ detail/ policy -points -pennsyl 
vanias -debt -burden.

———. 2017b. “The History of Tom Wolf ’s Proposed Tax Hikes.” June 22. Available at 
https:// www .commonwealthfoundation .org/ policyblog/ detail/ policy -memo -the 
-history -of -tom -wolfs -proposed -tax -hikes.

———. 2017c. “Education Spending Overview, 2015–16.” Available at https:// www .com 
mon wealthfoundation .org/ issues/ detail/ education -spending -overview -2015 -16.

Couloumbis, Angela, and Karen Langley. 2017. “Pa. Lawmakers Approve Spending Plan 
on Time—but Still No Plan to Pay for It.” Philadelphia Inquirer, June 30. Available 
at http:// www .philly .com/ philly/ news/ politics/ state/ pa -lawmakers -on -track -to 
-approve -spending -plan -on -time -20170630 .html.

De Avila, Joseph. 2017. “Connecticut, Nation’s Wealthiest State, May Be Tapped Out on 
Taxing the Rich.” Wall Street Journal, May 19. Available at https:// www .wsj .com/ 
articles/ connecticut -nations -wealthiest -state -may -be -tapped -out -on -taxing -the 
-rich -1495186203.

Dick, Bob. 2017a. “House Budget Represents a Step Towards Fiscal Stewardship.” 
 Commonwealth Foundation, April 4. Available at https:// www .common wealth 



The Budget 75

foundation .org/ policyblog/ detail/ house -budget -represents -a -step -towards -fiscal 
-stewardship.

———. 2017b. “The Unrelenting Demand for Tax Increases Illustrates Lessons Un-
learned.” Commonwealth Foundation, July 10. Available at https:// www .common 
wealthfoundation .org/ policyblog/ detail/ the -unrelenting -demand -for -tax -increases 
-illustrates -lessons -unlearned.

Esack, Steve. 2017. “Pennsylvania Gov. Tom Wolf to Let Budget Become Law.” Allentown 
Morning Call, July 10. Available at http:// www .mcall .com/ news/ nationworld/ 
pennsylvania/ mc -nws -pa -budget -final -deadline -20170710 -story .html.

Fitch, Mark E. 2017. “As Connecticut Residents Flee Fiscal Mess, Some Take Their Jobs 
with Them.” Yankee Institute for Public Policy, May 2. Available at http:// www 
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-their -jobs -with -them.

Forster, Greg. 2016. “A Win-Win Solution: The Empirical Evidence on School Choice.” 
Friedman Foundation for Educational Choice. Available at http:// www .edchoice 
.org/ wp -content/ uploads/ 2016/ 05/ A -Win -Win -Solution -The -Empirical -Evidence 
-on -School -Choice .pdf.

Gonzalez, Junior. 2017. “Vape Shops Close under 40 Percent Pa. Tax.” York Dispatch, 
March 2. Available at http:// www .yorkdispatch .com/ story/ news/ 2017/ 03/ 02/ vape 
-shops -close -under -40 -percent -pa -tax/ 98603910.

IFO (Independent Fiscal Office). 2016. “Economic and Budget Outlook, Fiscal Years 
2016–17 to 2021–22.” November 15. Available at http:// www .ifo .state .pa .us/ down 
load .cfm ?file = / Resources/ Documents/ Five _Year _Outlook _2016 .pdf.

Justice Reinvestment Initiative Working Group. 2017. “Justice Reinvestment in Pennsyl-
vania.” Available at https:// csgjusticecenter .org/ wp -content/ uploads/ 2017/ 06/ 6 .26 
.17 _JR -in -Pennsylvania .pdf.

Levy, Marc. 2017a. “Pennsylvania Budget Takes Effect amid Fight over Funding It.” As-
sociated Press, July 10. Available at https:// www .usnews .com/ news/ best -states/ 
pennsylvania/ articles/ 2017 -07 -10/ last -day -arrives -for -wolf -to -act -on -32b -spending 
-bill.

———. 2017b. “Pennsylvania Sees Biggest Budget Shortfall Since Recession.” Associated 
Press, May 2. Available at https:// www .usnews .com/ news/ best -states/ pennsylvania/ 
articles/ 2017 -05 -02/ pennsylvania -sees -biggest -shortfall -since -recession.

McBride, William. 2012. “What Is the Evidence on Taxes and Growth?” Tax Foundation, 
December 18. Available at https:// files .taxfoundation .org/ legacy/ docs/ sr207 .pdf.

Meyer, Katie. 2017. “For the Second Year in a Row, Pennsylvania Passes an Unbalanced 
Budget.” WESA, July 11. Available at http:// wesa .fm/ post/ second -year -row -pennsyl 
vania -passes -unbalanced -budget.

Millsap, Adam A. 2015. “Does Pennsylvania’s Redevelopment Assistance Capital Pro-
gram Develop Its Economy?” Mercatus Center, September. Available at https:// www 
.mercatus .org/ system/ files/ Millsap -PA -RACP -1 .pdf.

Norcross, Eileen, and Olivia Gonzalez. 2017. “Ranking the States by Fiscal Condition.” 
Mercatus Center. Available at https:// www .mercatus .org/ system/ files/ norcross 
-fiscalrankings -2017 -mercatus -v1 .pdf.

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Fund Budget, General Fund State Appropriations.” Available at http:// www .pa 
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HB %20218/ 2017 -18 %20GF %20Budget %20Tracking %20Run .pdf.



76 Chapter 4

Pennsylvania Office of the Budget. 2017. “2017–18 Governor’s Executive Budget.” Avail-
able at http:// www .budget .pa .gov/ PublicationsAndReports/ CommonwealthBudget/ 
Documents/ 2017 -18 %20Proposed %20Budget/ 2017 -18 %20Budget %20Document 
%20 - %20Web .pdf.

Ryan, Mark. 2017. “Pennsylvania’s Fiscal and Demographic Outlook.” Independent Fis-
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Resources/ Documents/ Presentation _Lancaster _Chamber _2017 -07 -14 .pdf.

Stansel, Dean, José Torra, and Fred McMahon. 2016. “Economic Freedom of North 
America 2016.” Fraser Institute. Available at https:// www .fraserinstitute .org/ sites/ 
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able at https:// taxfoundation .org/ state -local -tax -burden -rankings -fy -2012.

Thompson, Charles. 2017. “Medicaid Politics Comes to Harrisburg via Pennsylvania’s 
State Budget Debate.” PennLive, July 15. Available at http:// www .pennlive .com/ 
politics/ index .ssf/ 2017/ 07/ medicaid _politics _comes _to _har .html.

Williams, Jonathan. 2017. “United States House of Representatives Committee on Ways 
and Means Written Testimony.” American Legislative Exchange Council, May 18. 
Available at https:// www .alec .org/ article/ united -states -house -of -representatives 
-committee -on -ways -and -means -written -testimony.

The Continuing Pennsylvania Crisis in Perspective
Marc Stier

The Rise of the Right in Pennsylvania Politics

Fads
There are fads in politics, like every other human endeavor. One such fad 
has, in the last ten years, wreaked havoc with the finances of states in every 
part of the country—the claim that the path to prosperity can be found in 
relentless cutting of spending and taxes, especially taxes on business.

The Far Right Comes to Pennsylvania
During the late 1990s this ideology took hold here mainly but not entirely 
among Republicans. Even some Democrats embraced the notion that reduc-
ing taxes, especially on corporations, might spur economic growth. As Gov-
ernor Ed Rendell was raising the personal income tax to fund increased 
education spending, he was cutting corporate taxes. Republicans embraced 
the theory with a vengeance, promising everyone tax cuts, although most tax 
relief went to corporations.

Republicans could cut taxes at the federal level without concern for run-
ning up deficits. But in the states, tax cuts had to be balanced by spending 
cuts. So Republicans needed a rationale for those cuts and came up with 
one—arguing, falsely, that public services were growing fast and were too 



The Budget 77

expensive because public sector unions were receiving salaries and pensions 
far above those in the private sector.

The Corbett and Wolf Years

The Right Takes Advantage of the Recession
As late as the last years of the twentieth century, the Republican Party in the 
General Assembly was fairly moderate, and leadership tended to come from 
centrists. But ideological shifts in the Republican electorate and district lines 
that empower the far right have gradually led both the House and, to a lesser 
extent, the Senate to move to the right.

When the Great Recession took hold and state tax revenues fell dra-
matically after 2008, right-wing Republicans found their opportunity. In the 
last two years of his administration, federal stimulus funds enabled Rendell 
to balance budgets without deep reductions in spending. But as those funds 
ran out, Pennsylvania, like other states, was faced with the choice of raising 
new revenues or making deep cuts in state spending. The right found an ac-
complice in Governor Tom Corbett, who embraced the far-right prescription 
of budget cutting.

The result was deep reductions in every area. There was a $1 billion cut 
to state funding of K–12 education. And since Pennsylvania had abandoned 
a funding formula for distributing money, those cuts were felt far more 
deeply in poor districts, especially urban but also some rural ones. The result 
was layoffs of over twenty thousand teachers, guidance counselors, and li-
brarians. Pennsylvania schools, already undersupported by the state, came 
to be the most unequally funded schools in the country, with schools in the 
most prosperous 25 percent of districts spending 33 percent more than 
schools in the least prosperous 25 percent of districts.

Reductions of over 30 percent to higher education had similar effects. 
Tuition went up in the Pennsylvania State System of Higher Education 
(PASSHE) by 20 percent. The Corbett administration cuts on top of a decade 
of neglect led Pennsylvania to fall to fourth from the bottom of all states in 
funding per college student. In 2013 only 56.1 percent of Pennsylvania adults 
age twenty-five and over had more than a high school degree, ranking us 
forty-first of fifty states.

Governor Corbett and the right-wing General Assembly also drastically 
reduced general assistance to the poor and increased waiting lists for child-
care, mental health, and disability services.

At a time when the growth of natural gas fracking demanded more from 
the Department of Environmental Protection, it suffered similar reductions 
and today remains funded at roughly two-thirds the level it was before the 
Great Recession.



78 Chapter 4

Spending on Pennsylvania’s crumbling infrastructure also fell until, in 
the last year of the Corbett administration, a coalition of business-minded 
Republicans and Democrats pushed through an increase in gas taxes to re-
store our roads, bridges, and transit systems. The state still remains near the 
top of the list of those with serious infrastructure problems.

Overall General Fund spending in the fifteen years before Governor Cor-
bett averaged 4.7 percent of the state GDP. It fell by 7.25 percent to 4.33 
percent during his years as governor. Unfortunately for state finances, tax 
revenues fell by 8.25 percent, creating persistent deficits. The phase-out of the 
Capital Stock and Franchise Tax continued, and Governor Corbett took ad-
vantage of a change in federal law to reduce the corporate income tax in 
Pennsylvania by about $300 million. Perhaps more important, Corbett and 
the extremist Republicans refused to institute a severance tax on natural gas 
drilling. Although the state has huge natural gas reserves that are relatively 
cheap to exploit, we remain the only state without a severance tax, costing 
Pennsylvania billions in revenue during the Corbett years and about $300 
million a year since gas prices dropped.

The Wolf Years
Governor Corbett’s policies were repudiated at the polls in 2014 when he 
became the first Pennsylvania governor since the adoption of the 1968 con-
stitution to be defeated for reelection. But even though Governor Wolf 
promised to reverse the direction of the state, the General Assembly contin-
ued to tilt even further to the right as a result of the impact of partisan re-
districting and national political trends in 2014 and 2016.

The Republican General Assembly has forced additional spending cuts, 
as General Fund spending as a share of GDP continued to decline under 
Governor Wolf to 4.25 percent. Even including special funds, spending as a 
share of GDP has fallen from 7.36 percent to 6.91 percent over fifteen years. 
(It is misleading to include federal spending in Pennsylvania for such things 
as Medicaid and education in the total of state spending.)

Similarly, taxes continue to decline in Pennsylvania as the state has fallen 
to twenty-third among all states in taxes per capita. (Again, it is misleading 
to count taxes paid by relatively well-off Pennsylvanians to the federal gov-
ernment as part of state taxes.)

The Wolf administration’s effort to find over $1.5 billion in efficiencies 
has enabled it to direct more money to K–12 education, while also meeting 
mandatory cost increases in corrections, Medicaid, and pension costs. The 
Corbett cuts to education have been fully restored for the most prosperous 
school districts and partially restored for the least prosperous ones. While 
this is an important achievement, Pennsylvania still needs to spend billions 
more to equitably and adequately fund every school.



The Budget 79

The Wolf administration has also directed small increases to human ser-
vices, especially for opioid addiction, childcare, the intellectually disabled, 
and the PASSHE colleges and universities.

Recurring Deficits
Despite these increases, budgets under Governor Wolf have remained aus-
tere, in no small part because the state has started each year with a deficit of 
$1–$1.5 billion just to provide the same level of services as in the previous 
year.

The deficits have long- and short-term causes. The long-term cause is the 
decline in tax revenues, especially from corporate taxes, which have fallen 
from 30 percent of all revenues in 1972 to 20 percent in 2006, to only 15 per-
cent this year. If corporate taxes still made up 20 percent of all revenues, the 
state would bring in an additional $2.3 billion per year, enough to close the 
yearly budget deficit while also increasing public investment.

The short-term cause of recurring deficits is that, except for increases in 
tobacco taxes in 2016–2017, the General Assembly has refused to raise recur-
ring revenues, preferring to balance the budget with one-year funds, such as 
the sales of licenses to sell liquor or promote gambling, and budget gimmicks 
such as borrowing from (or raiding) special funds that serve important state 
purposes, overestimating revenues, and shifting spending from one fiscal 
year to the next.

Republicans in the General Assembly insist on balancing budgets with 
smoke and mirrors rather than real revenues for two ideologically based 
reasons. On the one hand, they oppose new taxes. On the other, continuing 
budget deficits serve as a political cudgel to force deeper cuts in spending. It 
can be an effective tactic, especially when paired with the false claim that 
spending increases, rather than tax reductions, are the main source of bud-
get deficits.

The Failure of the Right and Another Path

Economic Distress in Pennsylvania and Beyond
The United States conducted a natural experiment in political economy in 
the years after the Great Recession as some states responded to declining 
revenues with deep cuts in public spending and taxes while others raised 
taxes, especially on the rich, and increased spending especially for pre-K, 
K–12, and higher education.

Today, the states that raised taxes and spending, such as California and 
Minnesota, are growing relatively fast, have balanced state budgets, and have 
rising wages. The states that cut spending and taxes, such as Kansas and 
Louisiana, have found themselves in a deepening morass as spending 



80 Chapter 4

 reductions have slowed their economies and wage growth and, together with 
tax cuts, further reduced revenues creating deep budget deficits.

Pennsylvania did not go as far as Kansas and Louisiana in cutting spend-
ing and taxes, but the cuts of the Corbett years reduced economic growth 
and worsened deficits. And, together with our failure to raise the minimum 
wage, the decline in public investment in the state explains why wage growth 
remains below all of our neighboring states, especially for those in the bot-
tom 20 percent of wage earners.

A Way Forward
The recent action by a bipartisan group of Pennsylvania senators, to raise 
recurring revenues and institute a small severance tax to balance the budget 
for the current year, suggests that here, as in Kansas, the right-wing tax- and 
budget-cutting fever may be breaking. So perhaps the time has come to put 
forward another direction for the state. A growing body of evidence clearly 
shows that, far from harming the economy, public investment, especially in 
infrastructure and education at all levels including training for those who do 
not go to college, is critical to economic growth and especially growth that 
benefits low- as well as high-income Pennsylvanians.

The question, however, is how to pay for investment in a way that is fair 
and politically palatable at a time when slow income growth for all but the 
top 1 percent makes tax increases unpopular. That’s a particularly difficult 
problem because we have a constitutional uniformity clause that prohibits 
graduated tax rates. As a result, we have one of the most inequitable tax 
systems in the country. Families in the bottom quintile pay 12 percent of 
their income in state and local taxes, families in the middle quintile pay 
10 percent, and those in the top 1 percent pay only 4.3 percent.

To address that problem, we have supported closing corporate tax loop-
holes and a severance tax that in the next few years would bring in $1 billion 
a year. We have also called for a Fair Share Tax that would increase the tax rate 
on income from wealth (capital gains, business profits, dividends, royalties, 
and estates) while reducing the rate on wages and interest. Increasing the tax 
on income from wealth from the current 3.07 percent to 6.5 percent combined 
with reducing the rate on wages and interest to 2.8 percent would raise $2 bil-
lion, while cutting taxes for 60 percent of Pennsylvanians and leaving taxes 
unchanged for another 25 percent. Over 50 percent of the new revenue would 
come from the top 1 percent, and 82 percent would come from the top 5 per-
cent of households. And yet taxes on the top 1 percent would remain below 
those of all neighboring states and half the rate of New York and New Jersey.

Conclusion

Right now, Pennsylvania’s government is torn between a Republican General 
Assembly that is still in the grip of radical right-wing ideas that mainly ben-



The Budget 81

efit the very rich and corporations and a Democratic governor who recog-
nizes that broadly shared prosperity requires selective increases in public 
investment paid for by new, and equitable, taxation. It is up to the people of 
Pennsylvania to choose between these two paths forward.

Discussion Questions

1. Why do the authors provide such drastically different solutions to
Pennsylvania’s structural budget problems?

2. Bob Dick argues that spending restraint is the key to dealing with
budget problems. Why? How does he use the experiences of “high
tax” states to bolster his claims?

3. He also supports the enactment of “budget safeguards” to prevent
the state from spending too much? What are these safeguards?

4. Marc Stier claims that Republicans are responsible for current
budget problems. Why?

5. Why does he claim that Pennsylvania would be best off by increas-
ing both taxes and spending? What changes would he make to the
tax system?

From Pennsylvania Politics and Policy: A Commonwealth Reader, Volume 2.
Edited by Michelle J. Atherton and J. Wesley Leckrone (Philadelphia, Temple
University Press, 2019).




