We’re spending more than we’re taking in. We call that a structural...

We’re spending more than we’re taking in. We call that a structural deficit. It’s not a good thing.

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By Tony May

When Milton Shapp came to Harrisburg as Governor in 1971, he brought with him a quiet, bespectacled and balding economist with a vision.  Dr. Ernest Jurkat was a man with a mission.  In the days before super computers and pocket electronic calculators, he was working with the Governor’s Office of Policy and Planning on the first, comprehensive Pennsylvania Investment Plan.

The goal was simple: to derive unbiased, factual information to drive decision-making about important public choices.  Should we put more money into schools or prisons?  Would saving the steel industry be more cost-effective than building up the garment industry?  Does encouraging home ownership produce more state revenue than subsidizing residential rentals?

If you could ask the right questions, you could take the guesswork – or political bias – out of government.

Today, a laptop computer has more calculating power and information storage capacity than a 1970s mainframe Univac or Burroughs or Honeywell computer.  We have the capacity to make Dr. Jurkat’s Pennsylvania Investment Plan a reality.  And yet we find ourselves in the longest,  most protracted and vitriolic budget battle in Harrisburg since the State Personal Income Tax was adopted in the 1970s.

Because we have access to computer calculations, we know our state is facing a gaping “structural deficit.”  What’s a structural deficit and what makes it different from a garden variety “deficit?”  We’re talking about a gap between what we have to spend to do the regular things state government has been doing and the revenue to pay for it.  Those things authorized by law by prior General Assemblies.  The cost of doing business as we know it and the estimated dollars we’re going to get from all sources currently authorized by law – taxes, fees, fines, etc.

There are four basic ways you can pay for a structural deficit – you can cover the cost via existing revenues; you can borrow money; you can use accrued resources and assets like a “rainy day fund” or transferring other special funds or you can increase revenues by raising taxes.

The hard truth is, though, that the state has to pay its bills.  And right now, because we have no credible state budget, we’re falling behind.  If the state were an individual human being, its credit rating would be falling like a rock.  Equifax and Experian and TransUnion would be lowering our credit scores month after month.  But we’re not an individual, we a state so the rating agencies that evaluate government finance  (Moody’s, Standard and Poor’s and Fitch’s) have lowered Pennsylvania’s credit ratings over the past few years making borrowing – if we were imprudent enough to want to consider that route to fill the gap – more costly.

In fact, they’ve warned the Commonwealth that they’ll be forced to downgrade the state’s creditworthiness if we don’t address the structural deficit.  They’ve even put a dollar value on the deficit – about $1.8 billion.  That’s fairly consistent with the deficit estimate from the state’s non-partisan Independent Fiscal Office (IFO).  Gov. Tom Wolf has suggested that it may be a couple hundred million larger but, to err on the conservative side, let’s use the $1.8 billion number.  There are only two few places where that kind of money can be raised – through the Personal Income Tax and through the sales tax.  The devil may be in the details but that’s the hard truth.  Raising the current sales tax by 1 cent would bring in $1.4 billion.  Raising the PIT by one half of 1 percent would bring in about $2.1 billion.  The solution is in there somewhere.  Everything else right now, in an election year, is obfuscation.

Dr. Jurkat died in 1994.  But if he were still with us, he could tell us what the payback would be for paying our bills on time, from meeting our obligation, from running government like a business.  Or you could buy some elementary level input/output software that can run on a laptop computer and make some rough calculations on your own.  You just know it will be better than continuing the budget impasse.