May 1, 2014

Independent Fiscal Office Sees $608M Less Revenue For This Fiscal Year, $990M Next

The Independent Fiscal Office Thursday released new revenue estimates which for FY 2013-14 is $608 million less than earlier estimates and for FY 2014-15 is $990 million less than previous IFO estimates resulting in nearly $1.6 billion less revenue than anticipated earlier, according to director Matthew Knittel.
The IFO estimates for FY 2013-14 are $569 million less than the Governor’s estimate and for FY 2014-15 were $778 million less than the Governor’s estimates resulting in a nearly $1.35 billion less revenue than anticipated, according to director Matthew Knittel.
By statute, the office issues an initial revenue estimate by May 1 and an updated revenue estimate by June 15.
“By the midpoint of the fiscal year it was apparent that two major revenue sources, namely sales and use tax and employer withholding, were not performing as expected,” Knittel noted. “Early 2014 brought additional weakness, with personal income tax annual payments, corporate net income tax final payments and financial institution taxes all coming in significantly below estimate.”
Knittel also said the expiration of the federal payroll tax cut, which resulted in a $5.2 billion income hit to Pennsylvania, was a significant factor in reducing personal income tax payments.
“The estimate incorporates projections for stronger economic growth in the second half of 2014 and early 2015,” Knittel said. “The labor market is expected to rebound from the unusually low job and wage growth in 2013, and the forecast anticipates an acceleration of consumer spending as well as improvement in the housing market.”
Department of Revenue Dan Meuser said in a press release, “To compound the personal income tax issue presented by the 2013 federal tax hikes, national wage and salary growth is also significantly lower than our economic forecasting consultant IHS predicted.
“While wages and salaries throughout the U.S. had been forecast to grow 5.1 percent in the first quarter of 2014, instead they grew 2.4 percent, a more than 50 percent decline. Also, IHS originally forecast U.S. gross domestic product to grow at 3.5 percent for the first quarter of 2014, but actual growth was just announced at 0.1 percent.
“This situation illustrates how any unanticipated economic pressure nationally can impact state tax collections and the Pennsylvania economy as a whole.”
A copy of the revenue estimate is posted on the IFO’s website.  The report discusses the economic outlook, and a separate document describes the methods and data used to make the projections.
Senate Democratic Leader Jay Costa (D-Allegheny) and Senate Democratic Appropriations Chair, Sen. Vincent J. Hughes (D-Philadelphia) released the following statement in reaction to the Independent Fiscal Office’s announcement that declining April revenues will result in a more than $1.2 billion revenue shortfall in Gov. Tom Corbett’s proposed budget for Fiscal 2014-15.
Sen. Jay Costa said, “The IFO announcement today of a more than $1.2 billion budget deficit in the governor’s spending plan both underscores the challenges that lawmakers face in crafting a balanced budget this year and illustrates the glaring lack of leadership from the governor on fiscal issues.  Under Gov. Corbett, Pennsylvania has faced a recurring budget problem because he has failed to outline a jobs plan and detail growth opportunities that would allow us to generate new revenues and make investments.
“For the past three years, the governor has blamed previous administrations for large deficits that he inherited.  There is no question that this huge deficit -- in a recovering national economy -- is owned by this governor.   
“There are revenue and budget savings alternatives readily available – not including broad-based tax increases – that will address gaping shortfalls but the governor must move off his ideological and political posture and agree to address the problems now.  Despite the fact that the governor dug the taxpayers this revenue hole because he has failed to lead, Senate Democrats have tried to help by outlining a reasonable revenue and savings plan of $1.1 billion and a pension alternative that would generate resources.”
Sen. Vincent J. Hughes said, “I am deeply troubled but not entirely surprised that Pennsylvania has a growing state budget deficit. This administration has simply done a poor job managing the state’s finances and economy. Last year, the Independent Fiscal office stated clearly that Pennsylvania had a structural budget deficit - that revenues were out of balance with expenditures and this administration has taken no positive action to fix that problem.  Our current year shortfall has already fallen more than a half billion dollars below estimate. This will create an estimated $1.2 billion revenue gap for the next fiscal year, making the job even tougher for lawmakers in Harrisburg as we begin budget deliberations.
“We have already offered a bill that would tax the extraction of natural gas from the Marcellus Shale at a rate of 5 percent. This responsible legislation would raise more than $700 million next year to close our revenue gap. Senate Democrats previously offered a commonsense plan detailing $1.1 billion in revenue options, include expanding Medicaid, slowing corporate tax cuts, and modernizing our state liquor store system. These are all good choices that would not require any broad-based tax increases and provide funding for key services.  This stands in stark contrast to the Governor’s budget plan which includes $1.2 billion of one-time budget gimmicks and a phony revenue estimate, which was laid bare today by the IFO analysis.
“These alternatives not only provide ample revenue to erase the current budget gap, they additionally provide the necessary resources to fix some of the more egregious provisions of the governor’s original budget proposal.  Bond rating agencies have already issued stern warnings that the Governor’s proposed budget continues a series of irresponsible budget and financial policies that will result in further downgrades to our bond ratings and significantly raise the cost of future borrowing.
“We cannot continue to balance the budget on the backs of middle class and working families so that the privileged few can continue to avoid paying their fair share. Irresponsible budget policies that cut aid to public school districts, reduced food stamp eligibility, refused access to affordable health care, and slashed county programs to assist the elderly, poor, and disabled have largely caused the budget problems we now face.”