Posts Tagged finance

Eye of the Storm

By Lowman S. Henry

As August melts into September the halls of the state capitol building are relatively quiet. This is a marked contrast to a year ago when state government was in what turned out to be the early phases of the longest budget stalemate in state history.  This year the budget, or at least the spending part of it, was done reasonably close to the constitutionally-mandated June 30th deadline, the revenue component followed several weeks later.

But is this just the eye of the storm?

In capitulating to too many of Governor Tom Wolf’s spending demands the state legislature larded up the budget with nearly $1.4 billion in new expenditures.  This despite claims of a $1.5 billion dollar “structural deficit” the governor claimed needed to be addressed.  Even those using Common Core math can calculate that left the state nearly $3 billion in the hole.

To pay for this spending orgy some $650 million in new taxes were cobbled together, and accounting gimmicks employed, to produce a “balanced” budget.  But the budget isn’t really balanced and even that $650 million contains projected revenue that will never actually materialize.  For example, lawmakers planned to charge the state’s casinos $1 million each to purchase 24-hour liquor licenses.  Apparently nobody thought to ask if the casinos wanted such licenses, as there now appears to be no takers.

The budget also includes revenue from on-line gambling.  The problem is legislation has yet to be passed authorizing on-line gambling.  After adopting the budget, the General Assembly adjourned for a two month recess delaying any possible revenue from that source deep into the fiscal year.

And, predictably, the taxes that were hiked on existing businesses are having a dramatic negative impact.  A 40% tax imposed on vaping supplies is driving many vaping stores – almost all of which are small businesses – out of business.  That means not only will projected revenue from the tax fall short, but the state will also lose out on sales tax revenue as the stores shutter their doors.

That Republicans in the legislature caved into $1.4 billion in new spending defied logic.  The GOP had fought an epic budget battle with the governor the previous fiscal year and won. Not only did they win, but not a single lawmaker seeking re-election was denied by voters due to the budget fight.  After posting a historic win, Republicans essentially forfeited the next game.

All of these elements are coming together to produce the perfect fiscal storm as budget talks begin for next year.  Don’t forget that “structural deficit” of $1.4 billion hasn’t been addressed.  A significant portion of the new taxes enacted this year will fail to materialize.  And, Governor Wolf continues to demand a lengthy menu of spending hikes – and the taxes to pay for them.

Making matters worse the governor and the legislature have not been able to agree on how to deal with cost drivers, particularly the skyrocketing cost of public employee pensions.  Pension costs are gobbling up the lion’s share of any new revenue produced by a still slow-growing state economy.  Republicans have passed pension reform only to see it vetoed by Governor Wolf. There are new legislative proposals on the drawing board, but they fall woefully short of resolving the problem.  Even if some reform is enacted it will likely have minimal impact on the upcoming 2017-18 state budget.

Given all of this, will Republicans stick to their pledge that without addressing cost drivers they will not enact broad-based tax hikes – such as raising the personal income tax, expanding and/or raising sales taxes – or  will they again cave into the governor’s tax and spending demands?  Much rides on the outcome of this looming budget fight, primarily the fiscal health of the commonwealth.

But, 2018 is a gubernatorial election year and this budget will be enacted as the campaign heats up.  Governor Wolf, if he seeks re-election, will want to show his base voters that he delivered the goods of higher spending.  Republican voters will judge the GOP-controlled legislature by their ability to resist higher spending and more taxes.  Add these competing political imperatives to the state’s perilous fiscal circumstances and we should brace ourselves for the second wave of the hurricane.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is

Permission to reprint is granted provided author and affiliation are cited.

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A New Shade of Blue

Residents of Penn’s Woods are about to experience history in the making: the start of a new state budget year with the previous year’s budget still unresolved.

Governor Tom Wolf guaranteed the anomaly by line item vetoing almost a third of the budget passed by the GOP-controlled legislature just before Christmas.

The official start of the budget process comes in early February when the governor delivers his budget address to a joint session of the Pennsylvania General Assembly.  For a variety of reasons the remaining unresolved budget issues from the current fiscal year are likely to remain that way well past the governor’s budget speech currently scheduled for February 9th.

Governor Wolf began the current impasse last winter by proposing a massive increase in state spending and demanding a package of tax hikes that exceeded the tax increases proposed by the governors of all 49 other states combined.  The governor asked this of a legislature not only in control of the opposite political party, but one that holds historically high majorities and one which has become significantly more conservative in recent years.

It is a common strategy for both sides to stake out their most extreme position at the beginning of negotiations.  That leaves room for compromise, which is what always happens during budget talks.  Governor Wolf asked for $3.4 billion in new spending, the GOP preferred spending cuts.  Ultimately, Republicans agreed to a $1 billion increase, including significant additional funding for the governor’s top spending priority: public education.  The governor, however, wants everything he asked for and he wants in now.  Thus began the budget impasse which persists to this day.

The governor has made it clear he is not interested in compromise.  After vetoing the on-time, no tax hike, balanced state budget passed by Republicans last June he immediately sanctioned television ads blasting GOP lawmakers.  In another departure from tradition Wolf vetoed the entire budget.  In the past governors have signed the budget then blue lined or line item vetoed the parts with which they disagreed.  Wolf, however, wanted to ratchet up the political pressure on Republicans so he trashed the entire thing.

Since then there have been numerous votes on alternative budgets, proposed tax hikes, and so-called cost drivers including pension reform and a plan to partially privatize state liquor stores.  GOP lawmakers have passed these bills only to have the governor wield his veto pen.

Governor Wolf and his allies in the liberal media have taken to castigating Republicans, especially House Republicans for being “extremists” because they will not support a broad-based tax hike.  Largely unreported by the media is the fact Democrats in the legislature have been equally obstinate in their support of the governor’s tax and spend agenda.  Vote after vote has fallen along party lines with only a handful of defections on either side of the aisle.

This (aside from the governor’s stubborn streak) gets to the core of the impasse: Democrats have been reduced to a largely urban party that allows no deviation from its Left-wing agenda.  Conservatives dominate in the Republican caucus, but there is a group of moderate, mostly southeastern Pennsylvania legislators, who often fracture party unity by siding with Democrats.

And look for Democrats to become more ideologically rigid after this year’s elections.  State Representative Nick Kotik of Allegheny County is one of only a very few so-called blue dog Democrats and he is retiring.  The term blue dog originated because the Left strangles their moderate brethren blue to force compliance.  This canine is about to become extinct in the Pennsylvania legislature.

In its place is another shade of blue: that being the governor’s face.  He is determined to hold his breath until he gets his way.  He has called Republicans stupid, extreme and their most recent budget “garbage.”  By remaining in campaign mode rather than maturing into governing the governor’s strategy ensures not only that the current budget impasse will continue, but that Pennsylvanians are in for three more years of fiscal chaos.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is

Permission to reprint is granted provided author and affiliation are cited.


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This Week on Lincoln Radio Journal: State Rep. Michael Tobash Talks State Budget

Radio Program Schedule for the week of September 12, 2015 – September 18, 2015

This week on Lincoln Radio Journal:

  • Eric Boehm has news headlines from
  • David Taylor of the PA Manufacturers Association is joined for a Capitol Watch discussion on how pension reform is key to resolving the state budget impasse with Neal Lesher from the National Federation of Independent Business-PA and State Representative Michael Tobash (R-Schuylkill/Dauphin)
  • Lowman Henry asks: Is Congress Obsolete? on his Town Hall Commentary

This week on American Radio Journal:

  • Lowman Henry talks with Lori Sanders of R Street about federal policies that discourage marriage
  • Andy Roth of the Club for Growth has the Real Story on a possible challenge to House Speaker John Boehner
  • Eric Boehm and Jon Cassidy have a Watchdog Radio Report on the federal Drug Enforcement Agency snooping into private medical records
  • Lowman Henry has an American Radio Journal commentary on the relevance of congress

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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Why the Recovery Remains Sluggish

The last time more Pennsylvania business leaders felt the state’s economy was headed in the right direction George W. Bush was just weeks away from being elected to his second term of office.  The economy had largely recovered from the devastation of the September 11, 2001 terrorist attacks and the resulting economic slowdown.

It has been a downhill roller coaster ride ever since with employer confidence in the business climate hitting bottom in the spring of 2009 during the depths of the Great Recession.  Despite the happy talk coming from both Washington and Harrisburg, those who actually run businesses say the economy is still getting worse, not better.

Every spring and fall for the past 18 years the Lincoln Institute of Public Opinion Research has conducted the Keystone Business Climate Survey.  It has served as an accurate barometer of economic activity in the state.  The survey depends not on government statistics – which are often subject to “revisions” – but rather directly asks the owners and chief executive officers who run businesses of all sizes about the economic climate they are actually experiencing.

In the fall of 2004, 28% felt the business climate was improving, while 21% said it had gotten worse.  Fast forward to the spring of 2009 – the nadir of the Great Recession – and 76% said economic conditions had gotten worse in the preceding six months as opposed to just 4% who felt it had improved.  The latest survey, conducted in September, found just 15% of the business owners/CEOs saying Pennsylvania’s business climate had improved, with 41% saying it is has gotten worse.  Another 55% felt business conditions had remained about the same, but – since the barometer was already at a historic low point that is faint praise.

The “recovery” from the Great Recession has been going on for nearly five years making it one of the longest recoveries in history.  Why is it taking so long?  The simple answer is that a wide range of government economic policies and regulations make it nearly impossible to do so.  Nothing discourages business development and expansion more than uncertainty.  From health care to tax rates to rapidly expanding regulation, Washington has served up more uncertainty than the economy can digest.

Obamacare is the biggest culprit.  Seventy-eight percent of the CEO’s surveyed said they expect their health care costs to increase under provisions of the Affordable Care Act.  Obamacare is so solidly opposed by the business community that three-quarters said the law should be repealed. Prior to the start of the recent partial government shutdown 69% said congress should defund the Affordable Care Act even if a shutdown ensued, which it did.  Republicans, of course, caved in leaving Obamacare intact.  This survey was taken before the Obamacare enrollment period opened and the roll-out melted down under the weight of technical glitches.

Let’s not blame just the federal government for the dour mood of Pennsylvania’s employers and job creators.  State government comes in for its share of the blame.  The survey was taken just as legislators returned from a lengthy summer break having failed to take action on key agenda items including liquor privatization, transportation funding and dealing with the state’s pension crisis.

The Keystone Business Climate Survey last spring revealed 85% of the CEO’s supported privatizing the state’s liquor stores.  Sixty-nine percent opposed removing the oil franchise tax cap as advocated by Governor Tom Corbett and the Republican majority in the state senate.  The September poll found 59% would rather take money from other parts of the budget to fund transportation infrastructure improvements than raises taxes or fees.  There is also strong support among the business leaders for the state to move employees from a defined benefit to a defined contributions pension system.

Thus owners/CEOs find state government either not acting on key legislative items – such as liquor privatization and pensions – or acting in ways they don’t support as transportation funding.  Business leaders are also confronted with a Republican-controlled General Assembly and a Republican Governor who have failed to enact any labor power reforms.  This leaves the labor playing field heavily tilted against job creators.

Looking ahead, by a two-to-one margin those engaged in actually running a business in Penn’s Woods say they expect the state’s business climate to continue getting worse over the coming six months.  Given the inability of the national government to come to grips with debt and spending and the gridlock in Harrisburg there is ample reason to believe they are correct in their assessment.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is

Permission to reprint is granted provided author and affiliation are cited.

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This Week on Lincoln Radio Journal: Rep. Stephen Bloom on ’four alarm fiscal fire’

Radio Program Schedule for the week of March 3, 2012 – March 9, 2012

This week on American Radio Journal:

  • Lowman Henry talks with Matt Patterson of the Capitol Research Center about global warming
  • Andy Roth has details of the Club for Growth’s latest congressional scorecard
  • Adam Tragone of Human Events has an Off the Cuff talk with Tim Phillips of Americans for Prosperity about the four candidates for the Republican Presidential nomination
  • Dr. Paul Kengor from the Center for Vision & Values at Grove City College has an American Radio Journal commentary on the continued relevance of the U.S. Constitution

Radio Program Schedule for the week of March 4, 2012 – March 20, 2012

This week on Lincoln Radio Journal:

  • Eric Boehm has the week’s news headlines from the Pennsylvania Independent
  • David Taylor of the Pennsylvania Manufacturers Association hosts a Capitol Watch roundtable discussion on the “four alarm fiscal fire” facing state government with Matthew Brouillette of the Commonwealth Foundation and with State Representative Stephen Bloom (R-Cumberland)
  • Lowman Henry has a Town Hall Commentary on the impact of debates in the race for the GOP Presidential nomination

Visit the program web sites for more information about air times. There, you can also stream live or listen to past programs!

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