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New PA Budget a Tax Victory But spending increases at unacceptable levels

Governor Ed Rendell is claiming victory in the Battle of the State Budget and many conservative groups are expressing disappointment in the levels of spending contained in the new fiscal plan. A close examination of the facts, however, shows conservatives have more to cheer about than Rendell.

The single most important objective of fiscal conservatives was to prevent a tax hike. The Young Conservatives of Pennsylvania went so far as to air radio ads in the districts of legislators who were seen as possibly wavering on tax hikes to remind them their grassroots were watching. Meanwhile, the governor had proposed a wide array of new taxes and/or increases in existing taxes and fought hard for their implementation.

The end result: no new taxes and no tax hikes. A complete victory for pro-taxpayer conservatives; a complete defeat for the tax and spend governor.

There are other reasons for conservatives to be pleased with the new budget. In addition to his multiple tax hike proposals, Governor Rendell also flooded the legislature with proposed new spending programs on everything from a massive new Pre-K education program to a socialized health care program. He got authorization for the Pre-K program, but no earmarked funding; and the fiscal part of his health care proposals were deferred for debate another day.

Conversely, conservatives did get some of the spending they wanted. Most notably an additional $16 million was put into the Education Improvement Tax Credit (EITC) program which provides tax credits to businesses that make contributions to charter schools and other free market education programs.

To be sure the budget is not a fiscal conservative's dream. With a $650 million surplus in state coffers from the 2006-2007 fiscal year the argument could have been made for a tax cut. Spending in the new budget will go up around 4.5%, which exceeds the rate of inflation plus population growth for the past year that averaged 3.15%.

Particularly egregious in the new budget is the additional $750 million in transportation spending that will largely be used to bail out mass transit systems in Philadelphia and Pittsburgh. While again throwing money at the bloated agencies that run those systems, the legislation does nothing to address the root causes of the problem; which are unrealistic union contracts and patronage-riddled bureaucracies. The transportation funding agreement also relies on revenue from the tolling of I-80. It is uncertain whether or not federal approval can be secured for such tolling, not to mention the fact it will take years to develop and implement a fare collection system.

Many major issues remain to be resolved. On the issue of health care there was widespread agreement among Republicans and Democrats for taking action aimed at decreasing hospital infections and expanding the duties of nurse practitioners, but the governor's proposal for a massive state-run health insurance system and associated 3% (minimum) new tax on employers is still on the table. Likewise, much of the governor's energy agenda has been put off for discussion when the General Assembly returns in September.

Republicans should place an issue of their own at the top of the fall legislative agenda: passage of the Taxpayer Protection Amendment. The main weakness of the budget agreement is that while avoiding any tax increases, spending still increased by more than the rate of inflation plus population growth. That means that state government continues to grow, rather than be held constant or - preferably - reduced.

The recent budget process is proof once again that our elected officials do not collectively possess the political will to contain spending. The only way to truly bring spending under control is to enact an iron-clad constitutional amendment that requires them to hold spending increases to inflationary limits.

Fiscal conservatives should take some time to savor a big win in the battle to prevent higher taxes, but should also roll up their sleeves and "be dedicated here to the unfinished work" of getting spending limits enacted.

lhenry@lincolninstitute.org

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