2014-15 Mid-Year Budget Briefing€¦ · 2014-15 Mid-Year Budget Briefing Challenges Ahead for the...

Tom Corbett, Governor ▪ Charles B. Zogby, Secretary of the Budget www.budget.state.pa.us

2014-15 Mid-Year Budget Briefing

Commonwealth of Pennsylvania


Tom Corbett Governor

Charles B. Zogby

Secretary of the Budget

December 3, 2014



2014-15 Enacted Budget Highlights

2

The 2014-15 enacted General Fund budget is $29 billion – an increase of $632 million, or 2.2 percent, from 2013-14.

For the fourth consecutive year, the budget increases funding for education and early childhood development, including state dollars for Basic Education Funding at the highest level in Pennsylvania’s history.

The budget continues the phase out of the Capital Stock and Franchise Tax which will be eliminated in January 2016.

The budget reaffirms the governor’s commitment to helping individuals with intellectual and physical disabilities, and provides critical supports for senior citizens, children, and low-income families.

The 2014-15 budget is balanced with no tax increases and refocuses the investment of

tax dollars in the core functions of government.



2014-15 State General Fund Budget – $29 Billion

3

All Other

$2.64B

9.3%

4.1%

7.3%

5.6%

Amounts in Thousands

Pre-K-12 Education . . . . . $ 10,244,455

Medical Assistance /

Long-Term Living . . . . . . 6,530,827

Other Human Services . . . 4,677,579

Higher Education . . . . . . . 1,606,861

Corrections/Probation and

Parole . . . . . . . . . . . . . . . . 2,216,303

Debt Service . . . . . . . . . . . 1,183,260

All Other . . . . . . . . . . . . . . 2,567,316

Total General Fund

Expenditures . . . . . . . . . $ 29,026,601

Pre-K-12 Education

35.3%

Medical Assistance / Long-Term

Living 22.5%

Other Human Services 16.1%

Higher Education

5.5%

Corrections & Probation and

Parole 7.6%

Debt Service 4.1%

All Other 8.9%



2014-15 General Fund Revenues

Estimated Actual $ Difference % Difference

Tax Revenue: (Dollars in Millions)

Corporation Taxes $ 777.0 $ 863.1 $ 86.1 11.1%

Consumption Taxes 4,508.8 4,543.6 34.8 0.8%

Sales & Use – Non- Motor 3,398.0 3,435.6 37.6 1.1%

All Other 1,110.8 1,108.0 (2.8) -0.3%

Other Taxes 4,804.2 4,868.6 64.4 1.3%

PIT Withholding 3,630.9 3,624.0 (6.9) - 0.2%

PIT Non-Withholding 573.7 569.8 (3.9) -0.7%

All Other 599.6 674.8 75.2 12.5%

Non-Tax Revenue 390.0 313.7 (76.3) -19.6%

Total $ 10,480.0 $ 10,589.0 $ 109.0 1.0%

4

In the first five months of 2014-15, revenue collections are $109 million above

estimate. When including the planned profit transfer from the LCB, year-to-date

revenues are $189 million above estimate.



Updates to U.S. Economic Forecasts

5

The 2014-15 General Fund budget adopted in July 2014 was based on economic

forecasts available at that time. Since then, the forecasted changes include a decrease

in Real GDP and an increase in U.S. Consumer Expenditures and U.S. Wages & Salaries

for 2014-15.

Global Insight’s Outlook for Fiscal Year 2014-15 Changes from June to November

June 2014 November 2014

Real GDP 2.6% 2.5%

U.S. Consumer

Expenditures 1 2.1% 2.8%

U.S. Wages &

Salaries 4.3% 5.0%

1 Data represents U.S. Consumer Expenditures on durable goods less autos.



U.S. and PA Jobless Rates

6

Source: PA Department of Labor and Industry, Monthly Seasonally Adjusted Labor Force Data.

Pennsylvania’s unemployment rate is slightly below the U.S. rate. The U.S. unemployment rate

decreased to 5.8% in October, while Pennsylvania’s rate decreased to 5.4% through October, a six-

year low.

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

U.S. Unemployment Rate Pennsylvania Unemployment Rate



Growing Jobs in Pennsylvania

7 2011 2012

Nu

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rivate

Sec

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Job

s

(in

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Since Governor Corbett took office, Pennsylvania has increased private sector

jobs by more than 185,000.

2013

4,900

4,926 4,939

4,955

4,978

4,996 4,988

4,999 5,005

5,012 5,019

5,037 5,045

5,056

5,075 5,085

4,750

4,800

4,850

4,900

4,950

5,000

5,050

5,100

Jan

ua

ry

Ap

ril

Ju

ly

Oc

tob

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Jan

ua

ry

Ap

ril

Ju

ly

Oc

tob

er

Jan

ua

ry

Ap

ril

Ju

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Oc

tob

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Jan

uary

Ap

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Ju

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2014



Since Governor Corbett took office in January 2011, filled staffing levels have declined by

more than 3,300 positions, or 4.4 percent. Additionally, the Corbett Administration has

implemented significant productivity and performance improvement reforms to enhance

program accountability and reduce costs by $699 million.

Reducing Administrative Spending

76,663

73,875

8

76,663

74,766

74,194

73,710

73,341 73,306

71,000

72,000

73,000

74,000

75,000

76,000

77,000

January 2011 June 2011 June 2012 June 2013 June 2014 November 2014

Salaried Complement



2002-03

2010-11

Rendell

2014-15

Corbett

General Fund Spend $20,400,104 $28,139,791 $29,026,601

Total Spending Increase Compared

to the Prior Administration $7,739,687 $886,810

Average Annual Percentage

Change 4.1% 0.8%

Average Annual Spending Increase $967,000 $222,000

9

General Fund Spending Growth Amounts in thousands



10

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

.

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

Projected Revenue and Spending

March 2011

Actual Revenue and Spending

December 2014

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Update on the 2011-12 Budget Slides



Post-Enactment Developments

11

Changes and Risks to the Planned Budget – Several known

adjustments to the initial spending plan will hurt the commonwealth’s

bottom line. In addition, there are other potential risks that could result in

further erosion to this year’s spending plan.

Known Adjustments: $286 million

Philadelphia Cigarette Tax: $14 million

Gaming License Revenue: $125 million

Non-Impact Drilling: $95 million

Corrections Supplemental Appropriation: $51.75 million

Transition Cost Supplemental Appropriation: $250,000

Potential Additional Risks

Bank Shares Tax

Weakness in Lottery Fund Revenues

Tax Refunds



12

General Fund Financial Statement (Dollars in Millions)

2014-15 2014-15

Enacted Revised

Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81 $ 81

Revenue Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,180 30,140

Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,225) (1,225)

Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,955 28,915

Prior-Year Lapses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 25

Funds Available. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,036 29,021

Enacted Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,027) (29,027)

Supplemental Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 (52)

Current-Year Lapses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 60

Total Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,027) (29,019)

Preliminary Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2

Transfer to the Rainy Day Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1)

Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 1



2015-16 Budget Planning



Challenges Ahead for the 2015-16 Budget

14

• Growth in mandated spending areas absent additional cost

containment, spending/service cuts, or reforms

• Potential additional risks to the 2014-15 spending plan

• Loss of $2 billion in one-time gap closing options that were

used to balance the 2014-15 budget

• Lottery Fund net revenues

• Majority of commonwealth union contracts expire in June 2015

• Addressing other long-term obligations, such as post-

employment benefits

• State Store profitability eroding as growth in operating costs

exceeds sales growth



15

Without cost containment, growth in mandated areas in 2015-16 will total more than $1.8 billion.

Department

of Human

Services

$910,194

Public

School

Employees'

Retirement

$592,147

Corrections

$215,025

Debt Svc.

$112,745

$0

$400,000

$800,000

$1,200,000

$1,600,000

$2,000,000

Amounts in Thousands

2013-14 2014-15 2015-16

Debt

Service $1,145,010 $1,174,255 $1,287,000

Corrections $1,942,267 $2,059,975 $2,275,000

PSERS $1,017,000 $1,157,853 $1,750,000

Human

Services $11,045,132 $11,208,406 $12,118,600

$15,149,409 $15,600,489 $17,430,600

Am

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$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16General Fund ARRA

2007-08 Mandated

Spending

$11.6 Billion

2015-16 Mandated

Spending

$17.4 Billion

2007-08 Revenues

$26.9 Billion

Projected 2015-16 Revenues

$29.0 Billion

Am

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Mandated spending includes Department of Human Services, Corrections, School Employees’ Retirement and Debt Service. Revenues include tax refunds. 16

Illustrating the depth and length of the Great Recession, the 2012-13 fiscal year was the first time that

General Fund revenues were greater than in 2007-08. Between 2007-08 and 2015-16, mandated

spending areas are projected to grow by $5.8 billion, while net revenues will grow by only $2.1 billion over

the same period of time. This imbalance between revenue growth and mandated spending has the effect

of crowding out spending in all other areas of the budget.



17

$342.6 $408.6 $600.2

$856.1 $949.3

$1,383.0

$1,750.0 $2,064.0

$2,244.0 $2,386.0

$2,533.0

$81.9 $98.4

$151.9

$216.4 $298.7

$386.7

$485.8

$590.9

$617.6 $611.8

$614.9

$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

$3,000.0

$3,500.0

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

PSERS SERS

+82.5

+245.1

+320.4 +175.5

+521.7

+466.1

+419.1

+206.7 +136.2

+150.1

PSERS and SERS Employer Contributions – GF Share

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2014-15 PSERS includes $225 million from the Tobacco Settlement Fund.



Cost Growth for Average-Salaried Employee

18

Year-over-Year

Change

2014-15 2015-16 $ %

Personnel Costs:

Salary $53,625 $54,231 $606 1.1%

Benefits -

Active Health (PEBTF) $11,876 $12,619 $743 6.3%

Retiree Health 8,717 10,166 1,449 16.6%

Pension 10,682 13,509 2,827 26.5%

Other 5,749 7,169 1,420 24.7%

Benefits Subtotal $37,024 $43,463 $6,439 17.4%

Total Personnel Costs $90,649 $97,694 $7,045 7.8%

Benefits as a percent of

salary 69.0% 80.1%



19

$46,113 $47,821 $49,082 $50,598 $50,229 $51,439 $53,625 $54,231

$16,574 $16,574 $15,660

$16,052 $17,096 $19,053

$20,593 $22,785

$1,513 $1,573 $2,017

$3,537 $5,279

$7,829

$10,682

$13,509

$4,654 $5,851 $5,830

$5,916 $6,044

$6,162

$5,749

$7,169

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

(Estimated)

2015-16

(Estimated)

Salary Healthcare Pension Other

$68,854 $71,819 $72,589

$76,103 $78,648

$84,483

$90,649

$97,694

49% 50% 48% 50% 57% 64% 69% 80%

Benefits as a

Percentage of

Salaries

Cost Growth for Average-Salaried Employee



20

Other

One-Time

Options

$1,415,000

$255,000

$169,000 $328,000

$417,000

Federal

Fiscal

Relief

$3,066,000

$150,000 $125,000

$333,000 $90,000

$394,000

$503,000

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

2010-11 2011-12 2012-13 2013-14 2014-15

Prior-Year Lapses EscheatsGaming Licenses Transfers from Special FundsTax Refund Reduction Payment DelaysShifting Costs to Non-Recurring Sources

$2,012,000

$4,481,000

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One-Time Options in 2014-15 Governor Corbett focused on reducing administrative spending and stretching every dollar before

requiring taxpayers to send more of their hard-earned money to Harrisburg.



21

Pension reform

Liquor privatization

Electricity competition

Agency consolidations and efficiencies

Additional cost containment in the departments of Human Services, Corrections, and State Police

Tax and revenue increases

Balancing Options



Commonwealth of Pennsylvania

2014-15 Mid-Year Briefing

Tom Corbett Governor

Charles B. Zogby

Secretary of the Budget

December 3, 2014

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