HARRISBURG – As the weakness in the national economy continues to affect commonwealth revenue collections, Gov. Edward G. Rendell provided a mid-year budget review outlining a plan to address the General Fund shortfall that is projected for the remainder of the 2008-09 fiscal year.
“Based on revenue collections through November and current economic forecasts, we are projecting that revenues at the end of the current fiscal year will be below estimate by $1.6 billion,” the governor said at a public briefing at the mid-point of the state’s fiscal year. “We need to take steps now to adjust our budget while preserving programs that will help speed our economic recovery and that provide a safety net to vulnerable Pennsylvanians during this difficult time.”
The briefing, traditionally offered to legislators at the Governor’s Residence, was instead held in the State Museum Auditorium as part of Rendell’s commitment to a transparent process to assure taxpayers of the commonwealth’s fiscal responsibility during this national economic crisis. Budget Secretary Mary A. Soderberg and legislative leaders also participated in the briefing.
Rendell is proposing to close the projected $1.6 billion deficit for the fiscal year ending June 30 without any new taxes. The governor’s plan includes the following:
· $464 million from the already announced budget cuts and other cost-saving measures, including a wage freeze for more than 13,600 non-union employees and the elimination of this year’s cost-of-living adjustment for the Governor and Cabinet members; a hiring freeze; and the curtailment of out-of-state travel;
· $36 million in budget cuts by the General Assembly and other independent agencies – reductions that have yet to be identified by those entities;
· $375 million from a portion of the commonwealth’s $750 million Rainy Day Fund – which will safeguard the remaining half of the Rainy Day Fund to meet future economic challenges;
· $174 million in income from the Marcellus Shale natural gas drilling leases;
· $450 million in anticipated federal fiscal relief; and
· $101 million in unused funds left over in state accounts from prior-year budgets.
“I know the adjustments we have announced will be difficult for many Pennsylvanians. Tough choices and decisions have had to be made, but tougher ones may be on the horizon,” Rendell said. “I am committed to ensuring fiscal responsibility in our budget while doing the least possible harm to important public services. We cannot predict the future, but we can and must respond to the information we have today.”
Economic Outlook
Nearly every state is facing budgetary problems as a result of the national recession. According to the Center on Budget and Policy Priorities, Pennsylvania is one of 41 states facing budget shortfalls in fiscal year 2009 or projected shortfalls for fiscal year 2010.
In Pennsylvania, General Fund revenue collections from July through November were $657.9 million – or 6.8 percent – lower than estimated, the governor said. During the same period, Motor License Fund revenues were $112.5 million – or 9.8 percent – lower than estimated.
The governor noted, however, that Pennsylvania has many strengths that will sustain it during this period of economic uncertainty.
“Through disciplined budget management, we have been able to increase the balance in the Rainy Day Fund from $70 million in 2002-03 to more than $750 million today – a more than ten-fold increase.
“Now that that rainy day is here, we will be able to draw on the funds we have prudently put aside to help us balance the budget,” the governor said. To continue its pattern of fiscal prudence, the commonwealth plans to use only half of the Rainy Day Fund – $375 million – to balance the 2008-09 budget.
“In addition, I fully expect that the commonwealth will receive the federal stimulus funding that President-elect Barack Obama spoke of last week,” the governor said. “We anticipate receiving $450 million this fiscal year. Those funds will allow us to preserve the remainder of the Rainy Day Fund until 2009-10.”
Support from Wall Street
Other signs also point to the commonwealth’s overall fiscal soundness, the governor said. In connection with a commonwealth bond sale planned for today, the three top Wall Street credit rating agencies all reaffirmed the commonwealth’s double-A credit rating for its $8.2 billion in outstanding General Obligation debt. Double-A is the second-highest level of credit.
Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings also gave a double-A rating to the $300 million in General Obligation bonds being offered today. According to Moody’s, the commonwealth’s credit strengths include “an established record of good financial management,” a debt position that is “moderate and well-controlled” and “per capita wealth levels close to the national average,” the Governor said.
“Especially at a time of great economic uncertainty, it is reassuring to receive these positive assessments of our fiscal management,” he said.
Governing Efficiently
The governor noted that Pennsylvania is at an advantage over some other states with budget shortfalls because of his insistence since taking office on improving government efficiency and cutting administrative costs.
“The commonwealth is now saving $1.5 billion a year as a result of these efforts to spend less on the operation of government and direct more funds to programs and services that help Pennsylvanians,” the governor said.
Among the measures taken:
· There are nearly 3,000 fewer commonwealth employees than in January 2003, which saved the commonwealth approximately $240 million last year;
· The commonwealth has saved $272 million by developing smarter purchasing policies;
· The commonwealth has reduced the size of the automobile fleet and is keeping vehicles longer, saving approximately $33 million;
· The Governor’s recent directive to halt the purchase of new commonwealth vehicles will save an estimated $40 million this year alone;
· The commonwealth has kept average annual employee health care cost increases to less than 3 percent over the past five years – far below the growth in private health care costs; and
· Adjustments announced last year to the Retired Employees Health Program will save $94 million a year.
“With revenue growth curtailed because of the weak economy, we in state government will need to keep finding new ways to work well with less,” the governor said. “We do face many challenges today. But our proven track record of efficiency and wise investment will help us guide the commonwealth through these difficult times.”