Independent Fiscal Office: One-Time Fund Transfers Won’t Be Available Next Year

Majority Chair of the House Appropriations Committee Bill Adolph (R-Delaware) opened the first House budget hearing Tuesday with comments and included a statement about his concern with enacting a budget that relies on savings that may or may not come under scrutiny by the Courts, such as the pension proposal.

"Pension reform specifically is a major component of the governor's budget proposal because the administration uses approximately $175 million in savings generated from pension reform in other areas of the budget," Rep. Adolph said. "It will be incumbent on this legislature to see if this plan is one that will be able to deliver the anticipated savings and also stand up to the legal questions raised about the plan. I think we need to be exceedingly cautious about enacting a budget that is predicated on savings that will likely be subject be the courts."

Click Here for Rep. Adolph’s opening statement and the Independent Fiscal Office comments.

PA Economy: Director of the Independent Fiscal Office Matthew Knittel gave an opening statement in which he indicated that both the national and state economies are experiencing gradual improvements, but the rates of growth have been somewhat sluggish.  

The job market continues to improve at a moderate rate, and while the unemployment rate has improved, the IFO predicts unemployment for 2014 to be at 7.3 percent , which is still historically high.
Offsetting strong revenues from Personal Income Tax and corporation taxes are weak collections from Sales and Use Tax.  Other factors such as the expiration of tax cuts at the federal level will continue to affect spending.
IFO estimates that federal tax changes for 2013 will reduce the disposable income of Pennsylvanians by $7.7 billion.  This could be mitigated by the fact that since the onset of the recession, Pennsylvanians have paid down housing debt, which could help to increase spending.
The IFO current revenue projection is $75 million above their original estimate, resulting most likely from lower utilization of available tax credits, and strong Personal Income Tax numbers.

PA One Time Surplus: There is approximately $550 million available this year that may not be available next year, due to factors such as, among others, the phase out of the Corporate Net Income Tax and a transfer this year of $50 million from the Racehorse Development Fund.

The IFO has identified several problem areas to watch in the next several years. While many households have paid down mortgage debt, student loan debt has now come to the forefront.
Knittel said that Pennsylvania ranks first or second in student loan debt per capita. But with regard to all other forms of debt, Pennsylvania households have returned to 2004 debt levels. He also cited growing health care costs and obligations as an area of concern.  

State Lottery: Fielding a question about the PA Lottery’s sales rates, Knittel said that lottery sales have increased by 10 percent the last two years, and are on track this year to increase by a more moderate 7 percent and said that this is consistent with the economic recovery seen in other areas.

He said that the IFO has not done any comparisons to the PMA with Camelot, but that his office could do so if asked.  The IFO likewise has not been asked to undertake an analysis of liquor privatization proposals, but Knittel said it would be within his office’s purview to do so. They have received one request to study possible Medicaid expansion, and that study is in progress and expected to be completed in late March or early April.

Revenue Growth: In response to a question about growth rates and the degree to which the Governor includes more upside in his estimates, Knittel said that the IFO estimates are below the Governor’s and that they see more weakness in some areas, such as the Gross Receipts Tax, which is driven by the telecommunications and electric industries. He said the decrease in telecommunications is expected but the decline on the electric side is a surprise.

In answering a question about the tax changes proposed as part of the Governor’s budget, Knittel said that the IFO has analyzed the changes and has found that the revenue estimates as a result of those changes seem to be sound.

Slots Revenue: There was some discussion about a discrepancy in reports on slots revenue. Knittel said that his office is not statutorily directed to study slots revenue but that it would be within their purview to do so should they receive a request. Sen. John Rafferty (R-Montgomery) said that he may file a request to that effect since the amount of slots revenue directly affects the horse racing industry.
Links To Budget Testimony, Hearing Videos
The Senate Appropriations Committee is making available links to written testimony and a video of each presenter during the budget hearings--
-- Budget Secretary Charles Zogby: Video
-- Independent Fiscal Office Director Matthew Knittel: Video, Written Testimony
-- Public Utility Commission Chair Robert Powelson: Video, Written Testimony
-- Click Here for links to all available Senate budget hearing videos.
The House Appropriations Committee is also making links to testimony and videos of the budget hearing Q/As available online--
-- Independent Fiscal Office Director Matthew Knittel: Video, Written Testimony
-- Department of Revenue Secretary Dan Meuser: Video, Written Testimony
-- Department of General Services Secretary Sheri Phillips, Video, Written Testimony
-- Click Here for links to all available House budget hearing videos.