General Assembly Moves toward a Tough Budget

Not only have the costs of state and school pensions grown, but state revenues have not met projections, posing a potential deficit for the closing 2013-14 budget and leaving a $1 billion hole in the 2014-15 budget.

On the pension front, Pennsylvania is now paying the piper for a decade of not fully funding the state obligation to the pension funds. This, combined with the 2008-2009 recession and lower than projected investment returns, has created a $47 billion unfunded liability.

Unless Pennsylvania begins to resolve the pension unfunded liability, credit rating agencies are threatening to downgrade Pennsylvania’s bond rating.  A downgrade would lead to higher borrowing and interest costs on state debt, further compounding the budget problem.

So where will the General Assembly and governor find cuts or revenue to close the billion dollar gap?

Several proposals are being kicked around to close the gap, including selling the state liquor system, retooling the state and public pension systems and drilling more gas wells on state parks and forest land.

No one is talking about a general increase in the state income or sales tax – at least openly.

Whatever the solution, it will take a multifaceted approach. Some of these proposals shift the responsibility for funding some state responsibilities to local governments. Most likely there will be some cuts in the state funding of education, which now comprises 40% of the state’s total budget. This will increase the pressure on school districts to make further cuts… or raise taxes.

School districts will also feel the squeeze of their pension obligations, requiring more cuts, more taxes or a combination of the two.

This all will trickle down to the homeowner, who will find they have less disposable income to spend on things like landscaping installations and maintenance.

So stay tuned. The state must produce a balanced budget by June 30, 2014 under the state constitution. It will indeed be a busy June for the governor and legislators.