Mid-year budget briefing: Wolf administration projects year-end surplus

Mid-year budget briefing: Wolf administration projects year-end surplus

Author: Jason Gottesman/Thursday, December 14, 2017/Categories: News and Views

Wolf administration Budget Sec. Randy Albright delivered the mid-year budget briefing Thursday where he projected a year-end surplus potentially as high as $31.2 million on top of a $10 million transfer to the commonwealth’s Rainy Day Fund.


“In the past couple of years  you’ve heard me provide some caution and concern about the commonwealth’s fiscal health, but let me say after now three budgets put behind us, and after the work—belated as it may have been—after the completion of all the budget related bills that were part of this year’s budget process and the work we did to reduce the overall cost of the General Fund spend… as we sit here today, in our view, the commonwealth is in the best fiscal position it’s been in since the Great Recession,” he said.


“We’ve struggled for nearly a decade with chronic budget problems, budget shortfalls, and structural budget deficits that have been papered over with one time solutions; I don’t want to overstate our fiscal health—we still have additional work to do in that respect—but without any caution or concern, I would express to you today that the commonwealth’s fiscal health has improved significantly.”


According to Sec. Albright, the turnaround in fiscal health has been brought on by cutting the size of government and finding efficiencies to the tune of $2 billion through complement control, agency consolidation, a reduction in the corrections population, debt management, and lower-than-anticipated medical assistance spending requirements.


In addition, the effort was assisted in reducing a reliance on one time budget fixes by implementing tax modernization policies with the General Assembly that will bring in $1.062 billion in recurring revenue.


The work over the last three budget cycles, Sec. Albright noted, has put Pennsylvania in a position where it will more than likely be able to pay its costs without the need for a supplemental appropriation and approach the coming fiscal year without the need to seek revenue enhancements outside the administration’s repeated attempts to enact a natural gas severance tax.


“To balance the ’18-’19 budget, it will again be—much like the current year budget—a relatively austere budget,” he said. “We don’t think and we don’t anticipate the need to recommend any increase in broad-based taxes or any revenue enhancements to a rather large scale beyond, again, our continuing efforts to put a severance tax in place.”


Meanwhile, given the rosy picture painted at the current moment in time, the continued optimism does rely on a number of assumptions.


The first being that a $200 million transfer from the surplus in the Joint Underwriters Association Account will be made. The transfer of funds, which was first anticipated to occur in December, is currently on hold while the issue is the subject of federal litigation.


While Sec. Albright said the Governor’s Office of General Counsel has assured that the transfer is legal, the projection for the receipt of that money has been moved to June instead of mid-year.


Another assumption is that revenues from the newly enacted gaming expansion law come in at anticipated levels.


For the current fiscal year, budget crafters are counting on a $200 million General Fund revenue boost from the new gaming expansion law. However, while the Pennsylvania Gaming Control Board recently announced its guidelines for auctioning off licenses for the new category four casinos, it is unclear exactly how much will be brought in by the entire package, or if components will be subject to litigation that could put funding on hold.


In addition, the administration is still pursuing the lease-leaseback of the Farm Show Complex, a Wolf administration driven plan to monetize the state owned site to the tune of possibly $200 million. Currently, Sec. Albright stated, the administration is in the process of receiving requests for proposal (RFP) for the deal and is reviewing them.


Also, the budget was balanced by authorizing the governor to make as much as $300 million in transfers from so called special funds. Speaking to the issue Thursday, Sec. Albright cast doubt on whether or not that amount of money exists, but stated the administration is looking at the issue.


“We continue to look at all special funds. Frankly, that’s always been a part of the work that we do and we will continue to look at the list [of available funds] provided by the House Republican Caucus and all other available revenue sources, wherever they may exist,” he said.


“We certainly want to exhaust all responsible opportunities that we have. From that review, I will tell you, currently, that there aren’t hundreds of millions of dollars available, but even if there are tens of millions of dollars available in some of those funds, that will certainly be part of the means we use to balance the cost of current year operations and operations as we move forward with our proposed budget plans.”


Another wrinkle to consider is the divergence of the administration’s projections offered on Thursday with the Independent Fiscal Office’s (IFO) projections for the current and coming years offered in their five year outlook briefing provided in November.


There, the IFO—a legislative agency tasked with reviewing state finances, providing economic forecasts, and reviewing pension legislation—noted while they believe there is likely to be an $80 million surplus at the end of the current fiscal year, there will be a nearly $1 billion budget shortfall at the end FY 2018-2019.


Sec. Albright cast doubt on the IFO’s projections Thursday.


“Over the past year and, in particular their November forecast, we believe they missed the mark in a number of significant ways,” he said. “To be overly simplistic, we believe those forecasts overestimated expenditures by several hundred million dollars and likewise underestimated revenues in a like amount.”


In response, IFO director Matthew Knittel said they are standing by their projections.


“We have no new information that would cause us to change our estimate from last month,” he said.


However, Knittel did note that the nearly $1 billion shortfall was based on increases in discretionary spending, but could be as little as $600 million if expenses increased on a cost-to-carry basis.


Sec. Albright did note that the administration has additional software and modeling capabilities that may surpass the IFO’s abilities at the time when they need to present their forecasts, but Knittel noted the two share the same capability to look at incoming revenues, yet the administration maintains more frequency of contact with state agencies that might allow them to have more access to the expenditure side of the balance sheet.


As for more on Fiscal Year 2018-2019, the governor’s budget address is currently scheduled for February 6, 2018.