State House Sound Bites

Capitol reporter Katie Meyer covers Pennsylvania politics and issues at the Pennsylvania state capitol.
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Independent budget office bears gloomy news for state

Written by Mary Wilson, Former Capitol Bureau Chief | Nov 16, 2012 12:06 AM

Pennsylvania’s agency for nonpartisan economic analysis sees low revenue growth and high deficits in the commonwealth’s future.

Matthew Knittel, director of the Independent Fiscal Office, said the state’s economic outlook won’t come as a surprise to anyone.

“The word for the economic forecast is modest, and you will see that word a lot throughout the entire report until my staff got very sick of it and told me to find a new adjective,” said Knittel. “And so I used the word moderate.”

The report shows that over the next several years, the commonwealth will see a growing imbalance between revenue and expenses. Rising expenditures will be driven by pension and health care costs due to an aging population. Revenue in the next fiscal year is projected to grow by 0.8 percent. In the current fiscal year, a three percent growth rate was projected.

It’s not good news for any lawmakers hoping they’d have more money to play with during budgeting season.

“I wish it had surprised me in a positive way but no, there was nothing here that was surprising,” said Erik Arneson, spokesman for the state Senate majority leader. He said lawmakers knew crafting the next state spending plan would be no easier than the last two.

The IFO also projects that, if tax law and budget policies stay the same, the state will face a deficit next year of $468 million. In five years, the deficit is projected to be at $2.2 billion.

And two big question marks still linger over the report: whether the country ends up going over the fiscal cliff of automatic tax hikes and spending cuts, and whether the state expands its Medicaid enrolment under the Affordable Care Act.

Knittel said the IFO based its projections under the assumption Medicaid would not be expanded. As for the former, the office made an educated guess.

“The magnitude of the federal tax increase, we think, is on the order of $20 to $30 billion for Pennsylvania, if the tax cuts are not extended. We have assumed that some of them do not get extended, in particular the payroll tax cut, we do not think that will,” said Knittel, of the tax break provided to about 160 million wage earners last year. “The other ones, it’s unclear right now.”

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