How Pennsylvania Had a Deficit that Corbett Had to Close, Despite a Balanced Budget Requirement

When Republican Tom Corbett campaigned for governor in 2010, he promised to close Pennsylvania’s $4.5 billion budgetary shortfall by cutting spending and not raising taxes.  As I have posted, he has kept his promise.  See Governor Corbett Signs Pennsylvania’s Budget and Welfare Reform Legislation, from July of 2011, http://williamcinfici.blogspot.com/2011/07/governor-corbett-signs-pennsylvanias.html Pennsylvania Governor Corbett Signs His Second Balanced Budget from July of this year, http://williamcinfici.blogspot.com/2012/07/pennsylvania-governor-corbett-signs.html.

Because the Pennsylvania Constitution requires the legislature and governor to approve a balanced budget, some liberal Democrats are minimizing Governor Corbett’s accomplishment of balancing the budget.  Some even doubt that he could possibly have faced such a significant budget deficit at the time of his inauguration.  They fail to understand that fulfilling the constitutional requirement of approving a balanced budget (i.e. legislatively approving a document in the form of a resolution) is not the same thing as balancing a budget (spending exactly as much as revenue).

First, a budget is an estimate of revenue and spending.  It is impossible to predict accurately either revenue or spending, for a variety of reasons.  It is impossible to predict tax revenue, for example, not only because of the difficulty of economic forecasting, but because it is impossible to predict accurately the myriad of decisions made by individuals in the private sector, such as the total number of employee pay raises or cuts, promotions or retirements, let alone the earnings or losses from stocks or businesses investing in themselves, all of which affect the economy and tax revenue, as well as decisions on how to spend income.  Tax revenue is even affected by the unpredictable earnings or losses from gambling and lotteries.  Births, marriages, movings, illnesses, disabilities and deaths, all of which also affect the economy and tax revenue, are impossible to predict with exact precision.  Even the notoriously-difficult-to-predict weather can affect the budget of governments because of natural disasters or road maintenance or repairs.  Indeed, no government budget ever is exactly balanced; there may be at times, at best, either a small deficit or surplus, but never an equalization of receipts and expenditures.  Even if a budget were exactly balanced, it would surely be more by the chance of the mutual cancellation of many errors than the clairvoyance of budget crafters.  

Second, although constitutionally required to approve a balanced budget, a legislature and governor may use accounting gimmickry to present the appearance of a balanced budget that could not really be balanced.  Such a presentation may be made in good faith or bad.  Regardless, it would be a misrepresentation to consider a budget to be balanced simply because it purports to be balanced, even though it is not.

Former Pennsylvania Governor Ed Rendell, a Democrat, raised taxes and increased spending.  Some of the spending was necessary, but some was reckless and irresponsible, which included much of the Commonwealth’s budgetary reserve (“rainy day fund”), while revenue fell far short of expectations.  Several members of the legislature expressed the opinion that Rendell’s budget was unconstitutional even at the time of its consideration because of its unrealistic economic assumptions.  Therefore, despite the approval of the “balanced budget,” it was not surprising that the state’s budget produced a deficit.  Indeed, Pennsylvania’s budget was $4.5 billion in the red by the time Corbett took office.

One example, he relied upon one-time Obama stimulus money to keep spending, which he used for part of the basic education subsidy for school districts.  School districts in Pennsylvania were warned not to expect a continuation of the same level, but many of them budgeted for the following year as if they expected the same level.  Because the spendthrift Rendell, who was running out of cash for other state needs, used the stimulus money for basic education instead of for economic stimulus, many critics of Governor Corbett are claiming that he has “cut” spending for education, when in reality education spending has not been cut, but has simply returned nearly to its pre-stimulus level, as expected.  In short, the Obama stimulus fueled Rendell’s spending spree instead of stimulating the state’s economy while disincentivizing many of the state’s school districts from determining budget priorities and adopting sound fiscal practices.

Therefore, it is not only possible for a state like Pennsylvania to have a significant budget deficit even though its constitution requires it to approve a balanced budget, it, in fact, happened in fiscal year 2010.  Thankfully, Governor Tom Corbett recognized the seriousness of the situation that threatened the Commonwealth’s economic vitality and addressed it in a fiscally responsible manner.