Nothing wonkier than budgets I suppose. So everyone I know is obsessed with parsing all the proposed
expenditures in proposed 2013/2014 state budget just out. Makes sense;
first question for everyone is how will this impact me? I'll pass on the initial summary that most expenditures are stable or modestly up, with no big losers. Overall proposed expenditures are going up +2.4% over the year before (i.e. the fiscal year we are currently a little more than halfway through).
But what about revenues? The general expenditure levels are first and foremost set by the anticipated revenues. The battle for who gets what is really the
second order battle after there is a projection (and it is just a projection at
this point) of what revenues will be next year. Here are the revenues in the guv's budget
(see bottom of page 23 of the budget in brief for summary).
So a few things. The
budget just released is for the 2013/2014.
What is being projected? The
+4.1% expected for the fiscal year we are currently in is being projected to
scale way back down to just a +1.5% the next fiscal year. Bad times ahead? A big deal? Well, the
state's total revenue or the general fund is a tad under $28.8 Billion this fiscal year. So a difference of 1% is about $289
million. Put another way, if revenue growth next year just equaled the growth anticipated for this year, there would be $750 million more top line revenue in the projection. Now it seems that expenditures are projected to grow +2.4% so someone is not quite as dismal as the revenue projection would have you believe, but still, it all starts with revenues.
Why such a low revenue projection you ask? My
speculation on the dismal budget forecasting I went into in depth in this recent post: The most important number you have never heard of. In short, it's all about the projection for the state's labor force.
Anticipate slow labor force growth and you get slow revenue projections. Might be an interesting question for econo-wonks to debate. Is
revenue growth going to be as low as predicted? The answer drives a LOT of
budget thinking. I'll just start you out, it turns out that Pennsylvania's labor force is growing pretty fast of late, no matter what the projection is calling for.
But there is a 2nd question. How about this years revenue forecast doing? Forget the dire prediction for next year. Was the projection for this year optimistic or pessimistic, we are more than halfway through the fiscal year so we should have a good feel for how we are doing. +4.1% is certainly better than the year
before. So here is the same graph with
the latest data through December (in red), so the first half of the fiscal year. So not that far off,but if anything the
budget revenues for THIS fiscal year are coming in ahead of the curve, by just a bit... but a bit that adds up.
See where this is going?
Everyone fights over expenditures, but the battle is shaped by revenues. The budget just being proposed is anticipating just 1.5% additional
revenues over the current fiscal year. Virtually a new recession in Pennsylvaia.
The current fiscal year is pacing at least +5% (or 3.5points above what is being projected). Each of those percentage points in the delta
is $280+ million not being budgeted for. If nothing else, and I fully appreciate the obligatory dismalness of budget forecasters... at a certain point you have to ask yourself how much dismal is enough? Maybe the bigger question is if there is reason to think Pennsylvania's ecconomy is going to tank pretty soon (FY13/14 starts in less than 5 months) then we should have some explanation as to why giove.