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The Budget Stalemate Blues

The Budget Stalemate Blues

Our columnist on what it will take to end the madness


In a June column I asked how Governor Wolf would move from campaigning to governance. I speculated that getting the budget done, which would have to be built on significant compromise, would answer that question.

Of course it takes two to tango and so far nobody has been filling out the dance card. As the budget battle continues two months after its due date the question is why has it taken so long and what is the endgame?

I would cite big four reasons for the delay:

  1. Opening positions: The distance between the Democratic and Republican budgets is wide in terms of total general fund outlay and tax rates.

The two sides do not even agree on the size of the proposed budget with the Republicans quoting one number and the Democrats another (it depends on how you factor in an outlay for pensions of $1.7 billion into a restricted account and $2.1 billion set aside for 2016 property tax relief). The differences on the personal income tax, the sales tax, and the gas severance tax are significant.

  1. Structural issues: Unlike many budgets, this is not about simply negotiating taxes and spending. There are structural issues at play: the liquor store system and the pension fund system. Anytime you ask legislators to negotiate on fundamental shifts in expectations and government practices, the gulf widens. It is no longer about price but standards of action.

Structural shifts generally require a crisis. There are significant differences between the sides regarding where the crisis exists. Is it historical levels of under spending as with claims about education? Is it historical levels of over promising and under contributing, as with pensions? Is it with tax rates out of sync with other states (the gas severance tax) or is it with a system that many think keep us in a business we should not be in (selling alcohol)?

  1. Symmetry of power: Obviously it is easier to get a budget done if one side has the power in the executive and legislative branches. But in Pennsylvania (as in Illinois, where there is no budget either) the power is evenly distributed.

We have a Democratic Governor who won a decisive election against the former Republican who many in his own party did not support.

At the same time, the Republicans hold both houses of the legislature where they increased their margins last year. Wolf was one of the few bright spots for new Democratic governors in 2014 while the Republican gains in state houses are part of a national trend.

The result in Pennsylvania: a Democratic Governor that cannot pass a budget and a Republican legislature that cannot override a veto.

  1. Not enough early pain: A 2009 Pennsylvania Supreme Court ruling prohibits state workers from having interrupted paydays during a budget delay. This diminishes the early pain and panic characteristic of pre-2009 delays. It means that direct state services continue.

The early pain has to do with contractors with the state, including the many social service organization without contract renewals and payments. They are making contingency plans right now including decisions about laying off staff and cutting back services. In some cases their county or local governments can help out, but in many cases that is not possible.
Even the strongest social service groups are now being walloped by the delay, using reserves and maxing out lines of credit. Those with diverse revenue will weather the storm more effectively but they will all lose money managing the cost of disassembly and reassembly.

Sadly, those service organizations and their constituents do not have the political power to effect the budget timeline. They are part of the optics.

Besides these four issues, there are other factors that have contributed to the delay. As Daily News columnist John Baer notes, four of the five leaders critical to getting this done are new at this. Moreover, the outside game, where politicians go back onto the campaign trail to sell their budget positions, has not achieved results. Neither Governor Wolf and the Democrats nor the Republican legislators have been able to rally a divided state, although recent polling shows that more Pennsylvanians blame legislators for the stalemate than they do the Governor, while at the same time the Governor’s approval numbers are slipping.

The tone of the public campaign against the other side has alienated a few of the moderates. Demonizing the other side when you cannot get a deal done without them may feel good for a few days, but it does not work. Going after legislators in potential swing districts is an election strategy, not a budget strategy.

The elections already happened and the state voted for a divided government without giving any one side the edge. So only an inside game of negotiating and horse-trading works. There is no other way.

A few weeks ago it seemed like there was a reason to be optimistic: The Governor blinked on pensions and the Republicans blinked on increased school funding. The problem was how to pay for the schools and how to restructure the pension system. The Governor wants tax increases that the Republicans would not agree to and the Republicans want State Store privatization.

The Republicans tried to override the Wolf veto of their budget on a line-by-line basis but Democrats in the House of Representatives easily repelled that. Now nobody seems to know what will happen next. Harrisburg is like a cable news program that keeps playing the same story over and over, without real news.

In the absence of an agreement the pain is deepening, not only for social services for the most vulnerable Pennsylvanians, but for school districts that need their state revenue. Some smaller and poorer districts are already hurting. Many are taking out loans to tide them over which, of course, generates new debt service costs.

Depending on what progress is made there will be attempts to provide funding at the same levels as last year for schools and some social services prior to an agreement through a temporary appropriation bill.

The value of a continuing resolution is obvious. The downside is that it takes pressure off getting a comprehensive deal done.

There are lots of compromises that can move this forward. Pennsylvanians want to increase funding for schools and are in favor of a gas severance tax. They also want the pension problem addressed and they want the state to get out of the liquor sales business. They are not excited about increases in sales and personal income taxes.

My approach would be: School funding increases in line with the Wolf budget, a gas severance tax less than the Wolf proposal, no change in the income tax, an increase in the sales tax along the Wolf suggestion, a reduction in the corporate net income tax rate, a change in the pension fund system for new workers with a much smaller pension obligation bond than the $3 billion Wolf proposal, and an agreement to privatize the State Store system based on a multi-year timeline.

Maybe you do not think my recipe goes far enough in some directions. Maybe you think it goes too far in other areas. Maybe so.

But here is the thing. Negotiations are not about who is right. They are about agreements that are right enough for a divided government that reflects a divided state, to move forward. Negotiations are what elected officials do during budget time when they are doing their job, which is governing.

The only budget that does not work is the absolutist one where one side takes all: the power dynamic does not allow for it. Thinking otherwise means we all lose.

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