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Pennsylvania’s budget basics
According to the National Association of State Budget Officers (NASBO), Pennsylvania’s total expenditures in fiscal year (FY) 2020 were $92.7 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Pennsylvania’s combined state and local direct general expenditures were $129.2 billion in FY 2017 (the most recent year census data were available), or $10,102 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.
Pennsylvania’s largest spending areas per capita were public welfare ($2,680) and elementary and secondary education ($2,309). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
Pennsylvania’s combined state and local general revenues were $125.4 billion in FY 2017, or $9,805 per capita. National per capita general revenues were $9,592. Pennsylvania uses all major state and local taxes. After federal transfers, Pennsylvania’s largest sources of per capita revenue were charges ($1,536), such as state university tuition and highway tolls, and property taxes ($1,528).
Governor Tom Wolf, a Democrat, was elected in 2018 with 58 percent of the vote. The next gubernatorial election is in 2022.
Pennsylvania has a divided government. Republicans control both the House of Representatives (113 Republicans to 90 Democrats) and Senate (28 Republicans to 21 Democrats and 1 independent). All Pennsylvania House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2022, and the other half will be up for election in 2024.
Pennsylvania’s budget institutions, rules, and constraints
Pennsylvania uses an annual budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. Pennsylvania does not have any other tax or expenditure limits. The state does limit total authorized debt and debt service incurred by the state.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Pennsylvania’s recent fiscal debates
- For the past decade, Pennsylvania has debated creating a severance tax. A severance tax is a tax on the extraction of natural resources such as oil and natural gas. Pennsylvania is the only major gas-producing state without a severance tax. (California does not levy a tax but has a fee on extraction.) Governor Wolf campaigned on creating a severance tax during his 2014 campaign and has put forward five tax proposals (one for each of his budget proposals) since taking office. The influential natural gas industry and most Republican legislators oppose the tax because they fear it will make natural gas production more expensive and cost the state jobs. Opponents of the tax also note Pennsylvania created a “drilling impact fee” in 2012 and has collected roughly $200 million in revenue from it each year since its enactment. Governor Wolf’s proposals for a severance tax (which would be levied in addition to the fee) have varied from year to year, but his office estimated legislation introduced in 2018 would have raised $250 million over the next fiscal year if it had been enacted. However, severance tax revenue is inherently volatile and difficult to predict.
- Reducing property taxes in Pennsylvania is another seemingly never-ending debate in state and local finance. Over the past few years, the legislature has debated several bills that would completely eliminate property taxes for homeowners, and big property tax reductions have been at the center of the state’s political discussions for decades. In December 2019, a study outlined five new plans for reducing school property taxes. The legislature is expected to debate one or all of the proposals in 2020. However, the same core problem remains: all five plans reduce revenue by billions of dollars each year and require large increases in the individual income tax and general sales tax to offset the revenue cost.
- Pennsylvania was one of the first states to allow legal and taxable sports betting. The state’s tax rate on a casino’s gaming revenue is relatively high (36 percent), but what sets Pennsylvania apart from other states is its license fee. Although obtaining a sports betting license costs only a few thousand dollars in other states, an operator in Pennsylvania must pay a one-time fee of $10 million to obtain a license. When Pennsylvania casinos were slow to add sportsbooks in 2018, many blamed the high cost of a license. However, eight casinos eventually opened sportsbooks, and at least three more are in the process. Although it is only a one-time revenue source, the $110 million in fees the state has collected is far more than the relatively low-revenue states collect from their sports gambling taxes. For example, New Jersey collected roughly $30 million in its first year, the most of any state.
Pennsylvania’s current budget
In May 2020, Governor Wolf signed an interim budget that allocated $25.8 billion for most government operations through November 2020. (The exception was the Department of Education, which received funding for the full fiscal year.) In November, the governor signed two budget-related bills that funded government operations for the remainder of FY 2021. The $11 billion package did not include any tax increases or major spending cuts, but instead relied heavily on federal funds from the CARES Act to balance the budget.
Governor Wolf released his proposed FY 2022 budget in February 2021. It recommends general fund expenditures of $37.8 billion. The governor’s budget calls for increasing the state’s flat income tax rate from 3.07 percent to 4.49 percent, while at the same time expanding the state’s “Tax Forgiveness” credit (which operates similarly to a standard deduction). If passed, the proposal would raise $3 billion in revenue but (because of the expanded credit) reduce tax payments for 40 percent of state filers. Governor Wolf’s budget also proposes increasing K-12 funding and increasing the state’s minimum wage. Governor Wolf has not yet given his State of the State address.
For more on Pennsylvania’s budget, see
Pennsylvania’s economic trends
Pennsylvania’s per capita income (per the Bureau of Economic Analysis) was $58,775 in 2019, ranking 15th among the states. It was above the national average of $56,663, but below the Mideast regional average of $67,172. The state’s median household income (five-year estimate) was $59,445 in 2018, ranking 22nd among the states and below the national average of $60,293. Pennsylvania’s poverty rate was 12.8 percent in 2018 (five-year estimate), below the national rate of 14.1 percent.
Although Pennsylvania’s averages tell a story about the entire state, Pennsylvania is composed of diverse localities. For example, the city of Reading’s median household income was $30,087, and its poverty rate was 35.4 percent; the city of Bethel Park municipality’s median household income was $75,636, and its poverty rate was 5.2 percent.
Pennsylvania’s unemployment rate historically tracks the national average. The state’s rate was slightly below the national average following the Great Recession, but it has again paralleled the US rate for the past few years. (See how COVID-19 is affecting state employment and earnings data.)