1. MICHAEL WOOD PENNSYLVANIA BUDGET AND POLICY CENTER DECEMBER 2, 2008 2008-09 at a Glance: How is Pennsylvania Faring So Far?

2. Who We Are The Pennsylvania Budget and Policy Center (PBPC) is a statewide, non-partisan policy research project. PBPC provides budget and fiscal analysis and public education in support of policies that improve the economic and social well-being of low and middle income Pennsylvanians. www.pennbpc.org

3. Objectives Overview of the state budget for 2008-09 How Pennsylvania state government compares with other states in terms of expenditures and taxation Revenue collections in 2008-09 and how they compare to previous recessions Options for 2009-10 budget

4. 2008-09 Pennsylvania Budget All Funds

5. Estimated State General Fund Revenue

6. Over One Half of All State General Fund Spending Goes for Pre K-12 Education and Medical Assistance

7. PA Ranked 30 th in Expenditures in 2005

8. …and Ranks 32 nd in State Taxes

9. Taxes Are Stable Over Time

10. Economic downturn starts to reduce tax collections Through November, General Fund revenues are $658 million below estimate (6.8%). Decreases are across the board:  PIT: -$77 million (2.0%)  Sales Tax: -$116 million (3.1%)  Corporate Taxes:-$150 million (15.5%)  Realty Transfer Tax:-$28 million (15.0%)  Inheritance Tax:-$24 million (6.8%)  Other Taxes (Liquor, Cigarette, Malt Bev.)-$11 million (2.4%)  Non-Tax Revenue:-$253 million (195.8%)

11. State General Fund Revenue 2008-09

12. Revenues Began Slipping Behind Prior Year in March

13. Previous Recessions and Tax Collections

14. In Last Recession, Income-Based Taxes Took Up to Two Years to Equal Pre-recession Levels

15. SHARON WARD PENNSYLVANIA BUDGET AND POLICY CENTER DECEMBER 2, 2008 Facing the Future: What are our options?

16. How Bad Is It? POTENTIAL REVENUE SHORTFALL FISCAL YEAR 2008-09 If current recession is same depth and duration of 2001 recession: $1.5 billion Annualized revenue shortfall 6.8%: $ 2.0 billion ???

17. Deficit Scenarios for 2009-10

18. PENNSYLVANIA RESPONSE 2008-09 budget was changed  Increase 3.9% down from 4.2%  Real 1.3% reductions in many departments Rendell October 30 th response  $311 millions in reductions for 08-09  4.25% for many departments, hiring freeze  $40 million cut in Motor License Fund December 1 update  Governor estimates $1 billion to $2 billion deficit  New cuts announced December 9

19. What Should Governments Do?

20. Balancing the 2008-09 Budget Use the Rainy Day Fund: $750 million Work for Federal fiscal relief  House bill: $426 million  Senate bill: $923 million Find Cost Savings: $500 million?

21. Are Spending Cuts the Only Option? Economist Joseph Stiglitz, Nobel Laureate and Peter Orszag, Director of the Congressional Budget Office: “ …if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run.” “Reductions in spending on goods and services, or reductions in transfer payments to lower-income families are likely to be more damaging to the economy in the short run than taxes on higher income families.

22. Status of Combined Reporting As of November 2008

23. NATURAL RESOURCES EXTRACTION TAXES

24. PA HAS A LOW FLAT TAX

25. State Taxes on the Wealthiest Are Lower

26. The Future….. Pennsylvania Budget and Policy Center 412 North Third St. Harrisburg, PA 17101 717-255-7156 www.pennbpc.org