Thursday, February 18, 2016

Gone or not gone????

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Capitolwire: PA's structural deficit might not be gone for long, even if Wolf gets all his budget wants.

The Wolf administration assumes it will limit annual growth of human services spending to levels well below those predicted by the Independent Fiscal Office.

By Chris Comisac 
Bureau Chief

HARRISBURG (Feb. 17) - Gov. Tom Wolf last week devoted his budget address to lecturing state lawmakers, mostly the Republican ones, about the necessity of raising taxes to avoid a fiscal crisis in Pennsylvania.

On that same day, Wolf’s budget secretary did his own bit of lecturing to Capitol reporters, about the same subject, noting the administration hasn’t abandoned some of the policy proposals Wolf made in his first budget address. However, budget efforts need to be refocused at the deficit and education, so things like property tax relief and business tax reform had to be put on hold for the budget Wolf still wants in 2015-16, as well as the governor’s newly proposed FY2016-17 spending plan, said Budget Secretary Randy Albright during his pre-budget address briefing.

But after running through the need for $3.6 billion in new revenues from the current and coming fiscal year, and, during the same time frame, the $3.1 billion in spending beyond that included in the General Appropriations budget without Wolf’s partial veto of Dec. 29, Albright noted the budget deficit could return in FY2017-18.

That’s one year after tax revenues are increased by more than $2.7 billion under Wolf’s FY2016-17 plan with one of the primary goals being to address what the administration says is a coming $2.3 billion deficit (the state’s Independent Fiscal Office projects something closer to $1.9 billion, assuming revenues aren't found to balance the current year's budget).

Wolf’s 2016-17 budget proposal anticipates that if he gets everything for which he’s asking – and he claims a "fiscal catastrophe the likes of which we have never see awaits the commonwealth" if his plan isn’t enacted – the state will end nearly $9.1 million in the black. In FY2017-18, the administration estimates it will have about $6.2 million left over after paying all of its bills.

However, that’s due to a pretty hefty assumption, according to the Wolf administration.

“I believe Randy was saying that if we do not bend the cost curve for human services spending, so that it does not exceed half a billion dollars per year, we will have a structural budget deficit in 2017-18,” said Wolf spokesman Jeff Sheridan in an email.

And that assumption is clearly illustrated – on Page A2-6 - within the FY2016-17 executive budget document released last week by the administration.

The governor hopes to keep expenditure growth for the Department of Human Services to 4 percent or lower for FY2017-18 through FY2020-21, and in some cases, much lower. FY2017-18 assumes 4-percent growth in expenditures, FY2018-19 assumes 3.2-percent growth, and fiscal years 2019-20 and 2020-21 plan for 3.3-percent growth.

Gov. Wolf and his Human Services Department are looking at ways to try to control costs, with a good portion of those hopes tied to things like Medicaid expansion, long-term managed care and improving the availability and use of home- and community-based care.

But are those efforts capable of shaving enough off the department’s expenditure growth rate?

The Independent Fiscal Office in its most recent five-year outlook document, released in late January, projects human services expenditure growth of 5.7-percent per year through FY2020-21 (between $600 million and $800 million per year), when the IFO estimates the DHS General Fund expenditures would be a total of $15.3 billion. The Wolf administration anticipates their efforts will keep those General Fund expenditures to about $14.5 billion by the time FY2020-21 rolls around, or about $800 million less than projected by the IFO.

The IFO’s projections only incorporate current policy, and do not anticipate additional changes in coming fiscal years. So while Medicaid expansion is factored into their assumptions, none of the other efforts which have yet to be implemented by the Wolf administration are contemplated in the IFO predictions for DHS expenditures. Additionally, since the IFO figures reflect the General Appropriations budget partially-vetoed by Wolf, and not the “framework” agreement Wolf wants (and upon which his FY2015-16 and FY2016-17 budget figures are based), the IFO and the administration start off at different points regarding expenditures for the current and future years.

But if the Wolf administration isn’t successful with its policy implementation, or the implemented policies fail to perform as anticipated, the state could come up short of a balanced budget, solely because of DHS expenditure growth (that doesn't take into consideration other budgetary assumptions made by the administration), in each and every year, starting in FY2017-18.

If DHS expenditures in between FY2016-17 and FY2017-18 were to grow by the 5.9-percent rate assumed by the IFO, and not the 4-percent rate assumed by the administration, that could produce a difference of $239 million, and in out years, similar gaps could compound the potential deficit.

When made aware of the potential risk the administration is taking - assuming it can hold human services spending growth below $500 million annually - Sheridan responded: “We are going to continue trying to control costs, but this also makes it obvious we need new, sustainable revenue.”

Of course all this already assumes the governor gets a combined $3.6 billion in new revenue this year and next.

And those on the conservative side of things characterized the administration's estimates as rosy assumptions, and said the way to improve people’s lives isn't raising taxes and government spending.

“Typically we see human services grow between $400 million and $600 million each year,” said Senate Republican spokeswoman Jenn Kocher, adding that was before Medicaid expansion became a wildcard in predicting future human services costs. The IFO projects $100 million of added DHS expenditures in FY2016-17 are due to Medicaid expansion and Pennsylvania having to pay a portion of its cost (5 percent, which will grow to 10 percent by 2020) – see Page 38 of the IFO’s most recent five-year outlook document

“It’s remarkable that less than a week out from the budget address the administration is saying that their 2017-18 planning numbers may not be in balance,” said Kocher. “It’s a little scary. It’s interesting that it appears that the administration is employing one of the so-called accounting ‘gimmicks’ that they spend so much time ridiculing.”

“It’s a curious question that requires an answer – are they going to need even more in taxes or will they cut some of the spending for which they have asked?” continued Kocher. “I guess the answer will really show us how they really view families and sending more of their money to Harrisburg through these tax and spend policies. 

“It’s questions like this that will make the upcoming budget hearings more important than ever," she added.

“The Wolf Administration claims they want to ‘control costs,’ yet continue to not only propose, but actually increase spending,” said House GOP spokesman Steve Miskin. “It doesn’t make sense, and builds a deficit if left unchecked… which is what they want.”

“The bottom line is, this governor and his administration are driven to increase taxes on every Pennsylvania resident and employer and everything they do is aimed to make a case to increase taxes. It is what they seem to stand for,” said Miskin.


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