January Freeze: Governor Announces $157 Million in Midyear Budget Cuts

Governor Tom Corbett announced $157 million in state spending cuts this week to resolve a midyear revenue shortfall. This marks the fifth straight year of cuts to health care, education and human services.

Weak economic growth in the first half of the fiscal year contributed to lower-than-expected revenue, but the picture, in the short term, may not be as dire as that painted by the Governor. The state is carrying a half a billion dollars in reserve that more than covers the current revenue gap. And despite falling short of estimate, state revenues as of December 2011 are still ahead of collections a year ago. Every major tax has seen year-over-year growth, except for corporate tax collections (which account for more than half of the current revenue shortfall).

Actions taken by the Corbett administration and the General Assembly have contributed to the revenue shortfall. The decision last year to allow corporations to accelerate depreciation costs may be costing more than originally estimated, while doing little to improve the economic outlook. That, combined with the continued phase-out of the capital stock tax in 2012, will cost the state hundreds of millions of dollars in lost revenue.

Changes to the revenue estimate may also be playing a role. Estimating a larger share of revenue collections in the first half of the year and a smaller share in the second half of the year, may have contributed to the midyear shortfall and could set the stage for a stronger revenue showing between now and June.

The budget freezes announced this week fall heavily on health and human services for women, children, and people with disabilities. Pre-K Counts, Head Start Supplemental and Family Literacy were each cut by 5%. Burn centers, critical care hospitals, trauma centers and family centers sustained a 10% cut. Services for victims of rape and domestic violence were cut by 5%, while obstetrics and neonatal services through Medical Assistance were cut by 10%. View a full list of spending cuts at the Pennsylvania Budget and Policy Center web site.

While these vital services are once again cut, the administration has announced plans for further tax reductions in the coming budget. The commonwealth must act responsibly, which includes delaying tax cuts that are unaffordable and have had little success in spurring growth, while maintaining its commitment to children and families and to services that do breed growth.

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