In final year, Wolf touts multi-billion surplus; but projections depict gloomy fiscal future

With at least $8.5 billion surplus in Pennsylvania’s coffers, and more piling up every month, this year’s coming budget fight is looking a little less perilous than usual.

At a press conference in Pittsburgh on Thursday, Gov. Tom Wolf held up the commonwealth’s fiscal turnaround in contrast to the budget shortfall he faced when he took office seven years ago.

Now, one reelection, three prolonged budget stalemates, 50-plus vetoes, and a pandemic later, Wolf said that this year’s financial success was a key part of his legacy.

“I’m going to be the first governor since [late Republican Gov.] Dick Thornburgh to pass on a  budget surplus to my successor,” the Democratic governor said.

So far, the revenue picture is rosy, as it has been for the past few years. Revenue numbers from the end of December 2021 showed the state had collected $1.5 billion more in tax revenues than projected.

This sign of economic strength, Wolf said, was a direct result of his “progressive” policy agenda, which has resulted in $2.8 billion more in education spending, lower prison populations, and more government funding for economic development and health care.

“You don’t do well financially by stiffing yourself on these investments,” Wolf said.

Some naysayers weren’t ready to stop and smell the flowers yet. House Appropriations Chairman Stan Saylor, R-York, told the Capital-Star earlier this month that despite the bullish revenues, the state’s workforce was down by 300,000 people since 2019, “which creates a real concern for the future as we move forward.”

Despite the substantial surplus this year, the state’s Independent Fiscal Office, which analyzes and produces reports on the state’s budget and economy, projects operating deficits later in the decade of between $1 billion to $2 billion.

The Nov. 2021 report found that increased federal spending was responsible for keeping both state costs down and consumer spending up, increasing tax revenues. However, as the economy returns to normal, the state’s structural deficit will complicate budgeting starting in 2023.

To spend or not to spend, Harrisburg asks this budget season

These projections are part of why the state saved $7 billion in last year’s budget, agreed to by Wolf and the GOP-controlled Legislature. Of it, $5 billion is unspent federal stimulus dollars, the rest surplus tax revenues. And this total could continue to grow. 

Wolf said Thursday that he expected this year’s surplus to reach between $5 billion to $6 billion before the end of the fiscal year in June, when the final budget of his administration is due. That could leave lawmakers with $13 billion in excess revenue.

For his part, Wolf offered a simple summary of his upcoming budget proposal, which he’ll present before a joint session of the General Assembly on Tuesday, Feb. 8: make “generational investments.”

“We need to continue to pay our bills,” Wolf said. 

Specifically, he wanted the state to put enough money into education that it could provide full funding to school districts in growing parts of the state without cutting funding from shrinking districts.

With a legacy at stake, Gov. Tom Wolf pushes for fair school funding

How far Republicans will go along with the plan is, as always, the biggest variable. Saylor said that he expected this year’s budget to spend some of the reserved federal stimulus money on hospitals, nursing homes, and care for people with disabilities.

He also expected more education funding to be, as always, on the agenda.

“I’m expecting the governor will propose more, and I would expect that there will be more funding,” Saylor told the Capital-Star. “I can’t remember the last time we didn’t do more funding for education.”

Right now, it’s unclear whether Wolf will make any new spending proposals. 

A top Democratic lawmaker told the Capital-Star that Wolf has met with them to hear what legislative allies are looking for in the budget.

Rep. Matt Bradford, of Montgomery County, the top Democrat on the House Appropriations Committee, said that Wolf met with House Democrats a few weeks ago to discuss the budget. The overall message to Wolf, Bradford said, was that the caucus’s previously announced plan to spend the federal stimulus dollars “is a pretty good place to start.”

The plan called for using the federal stimulus funds on child care, lead remediation, and community colleges, among other priorities.

He also pushed for the budget to tackle the commonwealth’s corporate tax rate, which is among the highest in the country.

“Our Republican friends talk a good game on tax reform,” Bradford said. “Democrats are the only ones talking about [corporate net income tax] cuts, about net operating loss, and about how to grow and strengthen Pennsylvania’s economy.”

After Wolf gives his budget address next month, the House and Senate will hold weeks of budget hearings with Wolf’s agency chiefs to go over the proposal.

The hearings are typically finished by mid-March, at which time negotiations take place in closed-door meetings between Wolf and legislative leadership, or their top staff. 

Finally, usually sometime in June, lawmakers will reveal the budget, which passes amid a flurry of other legislation that may include a number of smaller, agreed to proposals, from preempting local governments from banning plastic bags to allowing college athletes to sign marketing deals.

If negotiations drag on past the June 30 budget deadline, then the budget is officially late, further complicating the process in a key election year.

Wolf is term limited, and cannot run for reelection, leaving the governor’s mansion open. Meanwhile, the state Legislature will likely be running on new lines from redistricting, further complicated lawmakers’ reelection campaigns.