I am here today to talk with you about the future and how to reach it. The path to that future takes us through a present time fraught with troubles. No other General Assembly or Governor has faced the budget challenges that now lie before us. As we begin the 195th session of the General Assembly, and my first budget, we confront an undeniable reality:
A nation that once produced wealth beyond calculation has now produced debt beyond reckoning. The day of reckoning has come. We have work to do.
Our country has gone through a hard recession. And recessions hit state government hardest. People lose jobs. They go on the unemployment rolls. Or the welfare rolls. Sales tax revenues fall because nobody’s buying. Because nobody’s buying sales clerks and manufacturing workers lose their jobs. Everything spirals. State government is the safety net. That’s our job. And we have caught so many of the falling that our net is stretched to breaking.
We entered this year more than $4 billion in debt. For the present, I bring you a budget that has two underlying messages:
One: We have to spend less. Because we have less to spend.
Two: We must tax no more. Because the people have no more to give.
As to the future, the message is this:
If we find a way to reinvent ourselves, in how we do business, in how we grow jobs, in how we treat our citizens, in how we spend other people’s money, we will-to borrow a phrase from William Faulkner-not only endure but prevail. We will grow as an economy, as a commonwealth, as a people.
But to do this we have to change the culture of this place. It means we stop the one-time fixes and gimmicks that have barely held the machine of government together. It’s time to peel off the duct tape and get to work on what’s broken underneath.
The General Assembly has a crucial role to play in this task. We need to share ideas, to build on each other’s strengths. This recession isn’t going to last forever. If we do the hard things necessary when we are in a windless spot on this ocean, the breeze that is sure to follow will move us all the faster. We need to deal with our problems at the same time we plan for success. And we need to do it now.
In many ways what we need to do is the same as reviving an abandoned apple tree. If the tree isn’t tended and the branches pruned, that tree will grow into a tangle of limbs and leaves. But it will bear no fruit. We need to take this tree, so long overgrown, and cut back what isn’t fruitful. And we need to do that essential pruning on all branches of government. We need to do the hard cutting so the tree can once again bear fruit. And that fruit is jobs.
The substance of this budget is built on four core principles: Fiscal Discipline, Limited Government, Free Enterprise, and Reform.
Fiscal discipline means no new spending. It is our road to limited government. It means a return to free enterprise, where business and industry and labor are no longer hobbled by needless restrictions and strangled by reflexive taxation. If we are to create jobs we have to stop looking for reasons not to allow something. We need to find ways to make things work, to make jobs grow. It’s easy to find a reason to spend. Now we have a reason to stop.
The substance of the budget is at once sweeping and detailed. This budget sorts the must-haves from the nice-to-haves. Some of the cuts were expenditures in the thousands. Some ran into the millions. Many programs have been combined for greater efficiency.
It preserves the core functions of government while moving to take government out of places it has no business or is not needed or simply fails to perform compared to the efficiencies of the market.
In past years we have seen one-time gimmicks and sleights of hand. Harrisburg raided the Rainy Day Fund. It’s gone. And it’s still raining. They applied federal stimulus money to the operating budget. The only thing it stimulated was the appetite to spend more. The growth in spending and borrowing surpassed inflation, surpassed economic growth, and long ago surpassed the citizens’ ability to pay for it all.
Some have suggested a modest tax increase to fix this quandary. I see three problems with this idea. First, tax increases only seem modest to the people collecting them. The people paying them-the sales clerks and millwrights, the farmers, the moms and pops who run the corner stores-ask them if a tax hike ever seems modest. A one-time tax hike becomes a two time increase, then three, then-somehow – it’s permanent. Think of the Johnstown Flood Tax. It was passed to help that city recover from the flood of 1936. That was 75 years ago. That’s what happens to temporary taxes: one-time fixes become permanent burdens.
The second problem is that tax increases choke growth. Every credible study on the subject has taught us this: the states that have grown the fastest, attracted the most jobs, have stayed out of the way. If you tax less, people will see the point in earning more. If you regulate more sensibly, businesses will be able to maneuver in the turns of tight economies.
The third reason not to increase taxes is pretty simple. The voters said no. We are four months out from the election that sent us here. It was run on a three part theme: jobs, jobs and jobs. And every time someone was asked about new taxes they gave a three part answer: no, no and no. It’s time to connect the dots. So, to the people of Pennsylvania, the taxpayers who sent us here, I want to say something you haven’t heard often enough from this building: We get the picture. It’s your money.
The option I have chosen is to reduce the size and cost of state government. I’m proposing something we haven’t had in a long time: a reality-based budget. The electorate, its trust scraped to the bone by lies and half-truths, isn’t going to stand for another broken promise. I said we’d cut. I’m not asking you to read my lips. I’m asking you to read my budget.
And you can read my budget online, from your home.
My administration created an online budget “dashboard.” People can log on and view the entire budget in a reader-friendly form. You’ll be able to see for yourself how we propose to spend your money. You can track the revenue source. You can check every department’s spending, where it came from, where it’s going, and why. There’s a reason I call it the “dashboard.” It’s time the tax-paying citizen felt as if he or she were in the driver’s seat.
This marks the year that federal stimulus money ends. Harrisburg used much of that money to patch up the education budget. Now it’s gone. Washington gave and Washington took away. Amid cuts and recession we have found a way to keep Basic Education funding at the same level it held before the federal stimulus. Washington might be retreating. We’re not. At the same time, I am here to say that education cannot be the only industry exempt from recession. Our public schools do important work and part of that work must include setting an example. I’m calling on the employees of our public schools-administrators, teachers, support workers, everyone-to hold the line. If it means a pay freeze, trust me, you’ll have plenty of company out there to keep you warm.
With unemployment running over eight percent, working people across the state are going without pay raises. Or they’re giving back pay to keep their companies afloat. They are investing their faith and patience in the future of their jobs. We need to ask something of our educators.
Our calculations show that if public school employees across the state agreed to a one-year freeze on pay increases we could save school districts $400 million. That’s $400 million in arts and music programs saved. That’s $400 million in programs spared from cuts. That’s $400 million toward making next year’s budget less about cutting back and more about moving forward, at little pain to those sharing the sacrifice.
I am also calling on employees in the State System of Higher Education to consider sacrifice. I ask nothing more of our best educated people than to face up to a hard economic reality. The system in which you have flourished is in trouble. We cannot save it by individual efforts. The sacrifice must be collective, as will be the ultimate rewards.
Now, we all know that there’s an elephant in the room when it comes to education funding: The property tax. Too often we have seen school boards raise property taxes to avoid hard and necessary choices. It’s human nature. When you’re spending someone else’s money it’s easier to say yes than no. I believe any new property tax increases beyond inflation should be put on the ballot. If school boards can’t say no, maybe the taxpayers will. Let’s listen to the taxpayers on this one.
At the same time we need to give school boards some breathing room. There are too many mandates that tie the hands of local school boards. This administration is committed to curbing these mandates, including one that violates every law of economics: the inability to furlough employees when there isn’t the money to pay them. It puts the entire enterprise of public education at risk.
If government is here to share the taxpayer’s wealth then everyone needs to share in the sacrifice. Educators, Pennsylvanians await your decision.
This fiscal crisis is a time to re-think state spending on higher education. Despite state subsidies over the past decades, tuition has continued to increase. If the intent was to keep tuition rates down, it failed. We need to find a new model. When it comes to higher education we should do the same thing that we do in basic education: the dollars should follow the student. It’s their money.
Pennsylvania needs to re-think how best to educate our children. We simply can’t work within a broken system. We need to change the whole system. We need a new set of priorities: child, parent, and teacher-and in that order. What we have now in too many places are schools that don’t work. Families are trapped in failing schools, or schools that are a bad fit. We need to develop a system of portable education funding; something a student can take with him or her to the school that best fits their needs. One size does not fit all. But as it now stands, not all get to choose. Let’s give them school choice.
In Welfare, my budget retains the core services to care for our needy. At the same time it puts the brakes on a runaway train of spending. My administration is committed to caring for the eligible poor. This budget reflects that commitment.
This budget is also framed in the reality that a great measure of our cost is in our unionized state workforce of 62,000 people. They are employees of the public. They deserve a fair wage for a fair day’s work. They, too, know that we are in financial straits. My administration is ready to negotiate. Each side must understand the need of the other. We’re looking to reach a solution.
We enter collective bargaining fully aware of the hard realities of this economy. We are counting on our unions to recognize those realities as well. Many states, governed by Democrats and Republicans, face the same fiscal problems.
Even in California, Governor Jerry Brown proposed to cut take-home pay for state employees by 8 to 10 percent. His own words were: “We have no choice” and that California must “return to fiscal responsibility and get our state on the road to economic recovery and job growth.”
It’s no different here. The recession does not have a political party. It has hit Democrats and Republicans alike. And just as the recession knows no political creed the solution must be all-embracing.
In Pennsylvania we cannot keep asking taxpayers to cover increased salaries and healthcare benefits for public sector employees when those taxpayers are losing the same.
Here are some very serious numbers. Since June 2004 state government salaries have risen from a median average of $39,037 to $45,105. By comparison the median average earnings for a Pennsylvanian working in a for-profit business as a wage or salary employee stood at $32,239. And since the recession began, the state’s union employees have seen annual increases. The private sector-the taxpayers-has seen its average income stagnate. Commonwealth employees contribute, on average, 3 percent of their salary toward health care benefits. The taxpayer covers the balance. In the private sector, employees with health care contribute twice as much toward the cost of health coverage.
With that in mind, we will be looking for salary roll backs and freezes from state employees as well as asking them to increase their contributions for healthcare benefits. We also need to start the conversation about the necessary repairs to our public retirement system.
I want to be clear about this to our union leaders. Collective bargaining doesn’t mean some ill-defined middle ground. It means finding the spot where things work. In this case it is going to have to work to the good of the taxpayer or it’s not going to work at all. Let’s find that place and meet there. Let’s keep things working. Neither side need lose for the taxpayers to win. We need to act on our financial challenges now, before they act on us.
Some of you are probably scouring the budget just now in search of some pet project, commonly called WAMs-”Walking Around Money.”
It’s not there, plain and simple.
In recent years the Department of Community and Economic Development, DCED, has been a hunting ground for assorted nice-to-haves that were especially nice to have when looking for a few votes back home. We can’t afford that. We never really could. That kind of spending is part of what brought us to this moment.
What we have done at DCED is to streamline an agency that, frankly, looked like the back of an old radio. It had parts running every which-way, a labyrinth of programs. Too many good ideas entered at one end and never found their way through the wires. Where once there were 127 programs there are now 56. I think that’s a manageable number and a better way of keeping track. Additionally, we have straight-out eliminated line items that produced little more than spending. We have set a goal. We’re looking for results. We’re looking for new jobs, not votes.
My budget combines the Commonwealth Financing Authority with all other DCED loan funds. We call it the Liberty Loan Fund, and liberating it is. Where once a business owner needed a Sherpa guide to find his way through the mountains of financing rules, trying to figure out where his job creating business fit, this budget puts it under one roof. It’s a one-stop shop. We have combined stray items that were hard to measure into the Regional Economic Partnership. It works this way: Instead of individual favors we’re trying a market approach. Economic development agencies and providers will compete for taxpayer dollars. If you have a winning idea-you’ll win our backing.
But government is not meant to be the answer for jobs. The private sector is. The Marcellus Shale discovery, a natural resource deposit that rivals the ages of coal and oil, is a great example.
Limited government means not mistaking someone else’s property for your own. There has been much pressure to tax the gas being drawn from the Marcellus Shale. The Marcellus is a resource, a source of potential wealth, the foundation of a new economy. Not just something new to tax.
Pennsylvania can become a center not just of resources but a center of the industry that backs up those resources. For every pipe running a mile underground we should have jobs at distribution centers, at refineries, at shipping ports, and the offices and companies that run them.
These resources, by the way, belong to the people who own the mineral rights. Those people are getting their fair share by working out their own leases with the companies doing the drilling. That’s how it should be. That’s the American way. What Pennsylvanians will gain is the jobs, the spinoffs, and if we don’t scare off these industries with new taxes, the follow-up that comes along. You see underneath the Marcellus Shale is another bonanza. It’s called the Utica Shale. And where Marcellus promises 50 years of energy the Utica promises riches going into the next century. Let’s make Pennsylvania the hub of this boom. Just as the oil companies decided to headquarter in one of a dozen states with oil . . . let’s make Pennsylvania the Texas of the natural gas boom. I’m determined that Pennsylvania not lose this moment. We have the chance to get it right the first time, the chance to grow our way out of hard days.
With that in mind I have asked my very capable Lieutenant Gov. Jim Cawley to lead a Marcellus Shale Commission to oversee how we can build around this new industry and how we can make certain we do this while protecting our lands, our drinking water, our air, and our communities, all the while growing our workforce. I’ve directed Jim and the commission to get back to me with findings in 120 days.
Another means of keeping out of the way is tort reform. It’s tough enough to start a business and fight the market place. You shouldn’t have to fight every lawyer with enough money to put up a billboard. Legal liability costs scare jobs away. The way the law stands now a person or business can be held two percent responsible for someone’s injury and another party 98 percent responsible. But if the real culprit can evade payment, the minor player is stuck paying the full bill. That’s irrational. It’s unjust. And it’s got to end. We need to change that aspect of tort law. The general assembly has passed this reform before. I’m asking you to pass it again. You now have a governor who will sign it.
Just as we need to balance the scales of justice we need to straighten out another imbalance. Pennsylvania is now ranked as the tenth-worst state in terms of state and local tax burdens. In the past eight years the number of unemployed here has increased by 47 percent. In the last seven years alone the state lost 25 percent of its jobs in manufacturing. There’s no escaping the obvious. We tax too much and for our troubles we get fewer and fewer jobs.
We must eliminate the capital stock and franchise tax-a tax on the supplies and goods job-creators need in order to make the wares they sell. In today’s economy it’s like taxing recession. What you sell, we tax. What you can’t sell, we tax that, too. It doesn’t work. It doesn’t enrich the state. Instead of killing debt it kills jobs. This budget continues the phase-out of this harmful tax.
My budget retains an array of tax credits, not as a favor to businesses, but as a promise to their workers. New and growing industries, like the film industry that is growing around Pittsburgh and Philadelphia, need a government that knows enough not to shout “cut” in the middle of production.
The film tax credit, which we are retaining-and never thought to do otherwise-will attract jobs and pump money from outside the state into our economy.
The Research and Development Tax Credit does the same. So my budget increases it. The computer industries springing up along the banks of the Monongahela, the pharmaceutical firms ringing Philadelphia, the chemical firms, the agricultural firms-all these deserve a break, so they can develop the next generation of medicines, the newest innovation in Apple computers or Microsoft programs. With these innovations they will create the next generation of jobs. And jobs are what it’s all about.
Government can’t create jobs. And when it tries it usually makes a mess of it. Industries are built on a singular vision, not by committee. My administration is committed to a study that looks at how best to get us out of a business we should never have entered. I’m talking about the liquor business. This isn’t about the money. It’s about the principle. Government should no more run the liquor stores than it should run the pharmacies and gas stations. Business and its opportunities belong to the people.
With that in mind, I’m announcing a new governor’s task force on privatization. This panel will explore what jobs now performed by government might be better done by the private sector. The task force is not there to eliminate government-it’s there to eliminate unnecessary government. It’s there to make sure that when government can get out of the way, it does so.
However, if there’s one place you sometimes want government it’s on a lonely road, late at night, when your car breaks down. Or you’ve had an accident. Or, God forbid, you’ve been preyed upon by a criminal. We need police. We need firemen. We need corrections officers and probation officers. We need that protection, plain and simple.
This budget accounts for that.
To maintain our full complement of state police I have budgeted for two state police cadet classes this year and another next year.
I know, too, that crime often costs us long after justice is done. In 1993 Pennsylvania had 24,000 men and women in its prisons. Today that number is over 50,000. This number speaks to a failure. Sometimes it’s a failure in our schools, or in our society, but ultimately in the personal character of the criminal. We need to fund additional parole officers to help freed inmates make the transition from the prison yard to Main Street.
We need to think smarter about how and when and how long to jail people. We need to be tough on crime but we also need to consider the fiscal implications of our prison system. Last month my administration cancelled a prison project in Fayette County because we don’t need it and we can’t afford it. We also can’t afford to ask counties in our state to subsist on a prison-based economy. We need industries that generate wealth, not sorrow.
Two hundred years ago a group of English poets talked of building a utopian community along the banks of the Susquehanna. It was their dream to come to Penn’s Woods and flourish. They never made it here. Maybe they heard about our property taxes.
One of their friends was the poet William Wordsworth. He identified the dangers of a culture of spending. He wrote:
Getting and spending We lay waste our powers Note the subtlety there. It’s not that we use up our powers. We lay them waste. We lose them outright. Getting and spending we lose track of our real purpose.
Our job isn’t to spend. It’s to conserve.
Our job isn’t to buy off our problems. It’s to solve them.
Government will never be cost-free. But it must be freed from the culture of churning through cash that farmers and clerks and mill hands and nurses earned dollar-by-dollar.
They know the value of their money better than we do. We need to be better stewards of their wealth. We must spend no more than we have. We must not lay waste our powers by breaking the bank. We must not lay waste our powers by breaking our word. We said we’d fix this mess. And we will.
Every day, in the office you have entrusted to me, I look up from my desk at a long row of paintings-portraits of the first leaders of Pennsylvania. William Penn, John Dickinson, Benjamin Franklin, look down on that room. I can only think of how they dealt with the struggles of their era: Dickinson on whether to break with Great Britain; Franklin on how to unlock the mysteries of the world around him; Penn who called his settlement a Holy Experiment.
Like those men, we-and every generation-have a responsibility to today and a responsibility to the future. But our generation has an added responsibility: a responsibility to the past, to the sacred trust and the Holy Experiment these people passed on to us. It was passed to the hands of men and women of Pennsylvania who stood and died with Abraham Lincoln’s vision of an undivided Republic 150 years ago. It was passed to the people who built the railroads, forged the steel, tilled the soil and fought the wars-the people who made this state wealthy and kept it free.
We have an obligation to get things right, to set straight that which is crooked, to balance scales too long tipped out of balance by the quick fix and the easy answer.
So it’s time to give an account of our stewardship.
Let’s sit down and deal with the present so we can build the future in a way that respects our past.
Let’s build a new Pennsylvania.
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