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National Organization Ranks Pennsylvania 33rd in Proposed Spending Growth for FY 07-08 Commonwealth Lags Nation In Spending Increases For Third Straight Year
A report by the National Association of State Budget Officers (NASBO) ranks Pennsylvania’s proposed spending increase 33rd in the county, and places the Governor’s proposed 3.6% spending plan below the national average of 4.2 %. Governors of traditionally low spending states, including Mississippi, Alabama, Louisiana and Arkansas have proposed larger spending increases than Governor Ed Rendell.
“State government could grind to a halt over what is, by national standards, a modest increase in spending,” said Sharon Ward, director of the Pennsylvania Budget and Policy Center. “The rhetoric in Harrisburg bears little resemblance to the reality of Pennsylvania spending.”
According to the Fiscal Survey of the States, published annually by the National Association of State Budget Officers, 43 states have proposed spending increases for 2007-08. Pennsylvania is one of 18 states proposing growth of less than 5% (download table ranking states in PDF). In 17 states, proposed state spending growth falls between 5% and 9%. In 8 states, the proposed spending increase exceeds 10%. Five states have proposed net reductions in spending, including Wyoming, Delaware, Virginia, West Virginia and Alaska. Each of these five states experienced at least one double-digit spending increase in the past two years. (Data for Texas was not available and not included in the analysis.)
To view a copy of The Fiscal Survey of the States, 2007 click here.
2007-08 would mark the third straight year in which Pennsylvania’s budget increases come in below the national average. In 2006-07, spending increased by an average of 8.6% nationally and by 6.7% in Pennsylvania. In 2005-06, state spending increased by 7.7% across all states and by 6.3% in Pennsylvania.(1)
During the last three years of robust revenue growth, states, including Pennsylvania, have been able to make new investments in education, higher education and other public services, while keeping up with double-digit increases in health care costs, and higher-than-average increases in corrections, transportation and infrastructure costs.
According to the report, many states proposed slower spending growth for 2007-08 than in previous years, reflecting concerns about more limited revenue growth and downturns in some economic indicators.
In Pennsylvania, the budget debate is stuck, in part, over some lawmakers desire to limit state spending to the rate of inflation. Ward termed that goal “unrealistic, unnecessary and lacking any justification on good public policy grounds.” Nationally, since 1979, spending across all states has increased by 6.5% annually in nominal dollars, and by 2.1% annually in inflation-adjusted dollars. In Pennsylvania spending growth is roughly in line with growth in personal income and maintains state government at the same share of the total economic pie. By contrast, limiting state spending to the growth of inflation shrinks state government over time as a share of the economy and strangles the capacity of state government to maintain current levels of government services and public investments or respond to the need for new services or investments.
“More than three quarters of state General Fund expenditures are for health care, education and corrections and they grow faster that the overall rate of inflation,” said Ward. “Over any period of time, unless lawmakers plan to open up the prison doors, limit health care costs, or prevent school districts from growing, they can’t keep spending at the rate of inflation without drastic cuts in everything else.”
Most state budgets tend to respond to revenue trends; when revenue increases, lawmakers spend more on investments and reduce revenues, and during times of slower growth will reduce spending and increase revenues.
Taking a step in a new direction, fully two thirds of governors this year proposed expanding health care coverage to the uninsured. 23 states propose expanding to coverage to uninsured children and 11 states, including Pennsylvania, would expand health insurance to childless adults. “Unavoidably, if state government takes on new health care responsibilities, and reduces financial pressure on the private sector at the same time, state spending as a share of the economy must and should grow.”
Census data for fiscal year 2005 also confirm Pennsylvania’s middle of the pack status in state spending per capita. The Commonwealth ranks high in total revenue (6th) and total expenditures (5th), reflecting its large population, but falls to 22 in revenue per capita, and 23 in per capita expenditures. Per capita expenditures have ranked between 27th and 24th since 1998. The slight growth in expenditure ranking in 2005 may be due in part to Pennsylvania’s earlier recovery from the economic downturn of 2001-2003 and in part to its slow population growth.
“No business,” said Ward, “would base decisions about how much to spend today or invest in the future on an arbitrary formula. Neither should state government.”
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1 NASBO tracks actual and estimated expenditures reported by the states, and the data includes supplemental appropriations and expenditure changes made by states during the course of the fiscal year. Expenditure data is presented in more detail in the state expenditure report published annually in the fall and available at www. nasbo.org.