It’s more than just the weather driving people South and West. North Carolina has enjoyed budget surpluses for five straight years. Over the same time, manufacturers there have created hundreds of thousands of high paying jobs, and business and personal income taxes have been slashed.
Pennsylvania keeps slogging along in the other direction. The Senate in late July sent the House a revenue package consisting of additional taxes and borrowing to match a spending plan covering a fiscal year that’s already over a month old. One of the tax increases would be applied against an industry that represents our best hope for leading us out of our economic doldrums, the shale industry.
The comparisons, said PMA President David N. Taylor, who hosted the Conference of State Manufacturers Associations in Hershey last week, serve as both a sobering reminder of where we stand but they also instill some hope for where we could be.
“With Pennsylvania’s natural gas revolution, we should be the state leading the way for manufacturing and business in the nation,” Taylor said. “But years of poor policy decisions remain a drag on all sectors of the economy. Today, we need Harrisburg to break its bad habits so we can build a better future.”
The details of how the states compare are found in the fourth edition of the recently published “Ranking the States by Fiscal Condition” by the Mercatus Center at George Mason University. The authors, Eileen Norcross and Olivia Gonzalez, used thirteen markers in their comparisons – the weather wasn’t one of them. In the weighted rankings* North Carolina jumped nine places from 24 to 15 in just one year. It’s likely to rise even higher next year.
Pennsylvania is the same as it ever was-- stuck near the bottom in 45th place.
Norcross said that a combination of policy and politics have led Pennsylvania to “being very weak when it comes to short term cash flow, budget solvency and lack of reserves.”
Another thing not helping: the incorporation of the pension liabilities in the comparison.
The bottom line is that Pennsylvania is on the same fiscal track as Illinois, which is in the sputtering stages of a fiscal death spiral. The warning signs are there. Standard & Poor’s is again threatening to lower our general-obligation bond rating, now at AA-, meaning the cost of borrowing could creep even higher.
Carol Spain, a director in the U.S. States group at S&P Global Ratings, summed up Pennsylvania’s troubles in a recent statement: “While it is not uncommon for states to have periodic structural imbalance, Pennsylvania’s chronic misalignment and eroding general fund position, particularly during a period of economic growth, demonstrate a pattern of financial mismanagement.”
Note to lawmakers: higher taxes and borrowing are a big part of that mismanagement. There is another way.
Lew Ebert, President and CEO of the North Carolina Chamber, said that eight years ago that state faced a similar fate.
“The governor spent stimulus money to cover one-time spending gaps,” he said. “And our unemployment rate was climbing.”
He added that the business community worked to elect a group of lawmakers that now “when they wake up every day don’t look at business as a cow to be milked but they think of how to build the best environment for businesses to create jobs.”
The legislature enacted a series of tax cuts tied to economic growth. They eliminated duplicative regulations, enacted worker’s compensation reform, and they still had money left over to invest in the state’s infrastructure.
“You might think that lower tax rates would leave us with less to spend on infrastructure, but our economic growth has given us even more to invest,” Ebert said.
The trouble is the mindset among some in Harrisburg consists of a flawed one-dimensional approach to tax policy; when they need money, they look to raise taxes.
“Pennsylvania only uses stagnant modeling when debating tax policy,” Carl Marrara, Vice President, Government Affairs at PMA. “Therefore, when a tax rate cut is considered the only figure given to lawmakers is the lower collection based on current tax returns. There’s no consideration for investment and growth based on our increased competitiveness amongst our competitive states.”
It’s not just North Carolina that’s having our lunch. Oklahoma came in seventh in the Mercatus study, even with some recent lean years due to falling energy prices.
“We are addressing our long-term solvency issues through better funding of our pension obligations,” said Fred Morgan, President and CEO, Oklahoma State Chamber. “Our unemployment security trust fund is in good shape and we haven't borrowed money from the Feds. Our bonded indebtedness is also very low.”
Utah, ranked fourth in the study, has always been a fiscally conservative state, according to Todd R. Bingham, President, Utah Manufacturer’s Association.
“We don’t give the legislature a blank check,” Bingham said. “If they raise taxes we hold them accountable for where the funds went and what difference they made. And we’ve always been restrictive about spending even in good years.”
The reasons for Pennsylvania’s fiscal mess go back years and will take years to correct. Borrowing more money and increasing taxes now will only mean it will be that much harder to dig our way out.
Whether it be through an industry-thwarting severance tax or a manufacturing job-killing gross receipts tax, the current tax proposal passed by the Senate and currently being debated in the House of Representatives includes new, broad-based, higher taxes for Pennsylvania families, businesses, and consumers. Write to your lawmaker now and tell them to vote "NO" on new energy taxes. Click HERE.
*From the Mercatus study: “To construct an overall fiscal ranking of the states, the scores for the five dimensions of solvency are weighted and added together. The weights applied to each dimension for FY 2015 are similar to the weights used in the FY 2014 and FY 2013 rankings. Short-term measures are given greater weight than long-term measures. Cash and budget solvency scores are each assigned a weight of 35 percent because a weak cash or budget position presents an immediate problem for states in a recession. Long-run, service-level, and trust fund solvency are each assigned a weight of 10 percent because these indices measure a longer horizon, with solvency affected by future policy decisions and economic factors”