Almost $1 Billion in the Red and $779 Million Over Budget: It’s Time to Make Fiscal Policy a Priority in 2020

January 6, 2020

Graph 2: From PA Treasury's Transparency Portal

On Jan. 1, Pennsylvanians awoke to not only a new year, but a new decade. Little did they know, on New Year’s Eve the checking account of the Commonwealth was overdrawn by $904 million. Graph 2 shows the General Fund for the past month. The overdraft actually started Oct. 31, only four months into the fiscal year. The normal process to address cashflow shortfalls is for the state treasurer and auditor general to approve a Short-Term Investment Pool (STIP) loan to cover this shortfall. This time they approved a loan of $1.5 billion, which means taxpayers will incur an extra $11 million in new costs to borrow taxpayers’ money sitting in hidden accounts to bailout the General Fund. Basically, the Commonwealth ran out of money in one account and charged itself to use money in other hidden accounts. These hidden accounts in the “Shadow Budget” provide for a multitude of financial skullduggery and fiscal evasion. To be blunt, Enron’s fake finance scheme has nothing on the Commonwealth’s accounting tricks.

Graph 1 Courtesy of the Commonwealth Foundation

By Dec. 16 of every year, the Budget secretary is supposed to brief the leadership of the General Assembly on the mid-year budget status. This year, there wasn’t any discussion of the mid-year budget. As you will see in Graph 1, this fiscal year is reflecting a $257.8 million deficit, which is surprising since the difference between the estimated revenues and approved budget is $521.5 million. This means we should have a half billion dollar surplus. There is a proposed supplemental, or overspend, of $779 million. According to the Office of the Budget, the Department of Human Services (DHS) is the sole source of the overspending. While the 2019-20 financial statement reflects bad financial news, it does show the $340 million we now have in the Rainy-Day Fund. Had the General Assembly spent this surplus last year, the expenditures would be $300 million more adding to the deficit.

Graph 3 From PA Treasurer's Transparency Portal

The main driver behind this financial mismanagement of your money is consistent deficit budgeting. As Graph 3 shows, out of the past six years, only one time did total revenues surpass total expenditures and that fiscal year just happened to be the nine-month budget impasse during Gov. Tom Wolf’s first term in office. While Pennsylvania does have a constitutional provision requiring a balanced budget, it only applies to when the governor signs the revenue estimates. There are allowances for the governor to place expenditures in budgetary reserves to reduce spending throughout the fiscal year to maintain the balanced budget constitutional provision. As we are projected to have a $257.8 million deficit due to $779 million of overspending, one would think an astute financial planner would appropriately adjust spending.

The three graphs show failures in the constitutional and legal financial governance of the Commonwealth. Recently a group of legislators proposed commonsense reforms to address these underlying issues without the need to take more of your money:

	•	Sen. Kristin Phillips-Hill (R-York) and I introduced Senate Bill 885 and House Bill 1861, respectively, which propose an amendment to the state’s Constitution to address any spending by the governor exceeding the amount approved in the annual state budget.
	•	House Bill 1988, which I sponsored, would move over $2 billion of special funds back into the General Fund to eliminate the need to borrow and increase costs to taxpayers.
	•	To ensure the state is prepared for an economic downturn and to shore up its savings account, Rep. Tim O’Neal’s (R-Washington) House Bill 1989 would add an amendment to the state Constitution to require all surplus funds into the Rainy-Day Fund. In order for the money in the Rainy-Day Fund to be spent, a 2/3 vote of the General Assembly is required.
	•	Rep. Andrew Lewis’ (R-Dauphin) House Bill 1990 would establish a collaborative process by creating a Council on State Finances. By having open and transparent dialogue about the real finances of the Commonwealth, elected officials will be able better make financial decisions.
	•	In order to rein in the shadow spending through special funds, which aren’t accounted for in the General Fund, Rep. Dawn Keefer’s (R-York/Cumberland) House Bill 1991 would amend the Commonwealth’s Constitution to prevent the creation or use of special funds.
	•	Rep. Ryan Warner’s (R-Fayette/Westmoreland) House Bill 1316 would place a constitutional limit on state spending to population growth and the Consumer Price Index.
	•	Rep. Frank Ryan (R-Lebanon) proposed House Bill 1995 to establish a Bipartisan Keystone Solvency Operating Commission to study financial decisions which has led to insolvency of other governmental entities.
	•	In order to specifically address the DHS overspending, the House Government Oversight Committee released a bipartisan report addressing Medicaid provider fraud and improper payments. This report highlights over $642 million in improper payments just in our Medicaid program.

As you can see, these proposals provide much improved financial governance without the same old stale, status quo solution of needing more money. These commonsense solutions focus on reducing our borrowing, improving our credit rating and strengthening the Commonwealth’s Rainy Day Fund. Most importantly it would lock in prudent financial management into the Constitution, which will ensure these policies won’t be legislatively cannibalized by a simple majority.


Representative Seth Grove
196th District
Pennsylvania House of Representatives
Media Contact: Greg Gross
717.260.6374
ggross@pahousegop.com
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