Budget address coming Tuesday
By Eric Boehm | PA Independent
HARRISBURG — Pennsylvania is expected to end the year with a $500 million budget shortfall, but employment prospects are looking up, according to the head of state’s new Independent Fiscal Office.
Matthew Knittle, the former financial analyst for the U.S. Department of the Treasury who was tapped in September to be the first director of the new office, said the state should not expect to see a “spring surprise” in tax revenue. A similar boost occurred during the final three months of last fiscal year, leaving Pennsylvania with more than $500 million in unexpected revenue.
“We don’t think there is going to be a ‘spring surprise’ that is going to make up all of that money,” Knittle said of the expected $500 million shortfall during an exclusive interview with PA Independent on Friday morning.
Established last year, the Independent Fiscal Office provides revenue estimates in May and June of each year to help guide lawmakers in crafting budget proposals. It will act as a counter-balance to the governor’s Budget Office, which had been the sole source of financial and budgetary projections for state government.
The state Department of Revenue released January’s tax report earlier this week, which indicated the state has fallen more than $495 million behind expected revenue for the fiscal year, which ends June 30. January’s collections were more than $10 million behind expectations.
Sales tax revenue for the year is above estimate, but the state is about $250 million behind in revenue from personal and corporate income taxes, according to the Revenue Department.
“The economic assumptions that were provided last June were a bit optimistic,” Knittle said, though an unforeseen slowdown in the labor market during the fall of 2010 did not help.
Susan Hooper, spokeswoman for Corbett’s Budget Office, said the office would have updated information on the state’s finances, when the governor delivers his budget address Tuesday and would not comment on the state of the economy.
Kevin Shivers, executive director of the Pennsylvania branch of the National Federation of Independent Businesses, which represents small business owners, said the labor market was still struggling to pull its way out of the slump in Pennsylvania.
“We’re seeing a recovery, but it’s going at a glacial pace,” he said. “Right now, it’s important for the governor to stay on course and steer away from any new taxes and higher spending. That’s the only way to encourage small employers to invest in the economy.”
In the short term, workers will have a little extra money in their paychecks as a result of the temporary extension of the payroll tax cut, and that could boost state coffers as well, Knittle said.
Because the tax cut will leave workers with more money in their paychecks — and because research indicates about 60 percent of that additional revenue will be spent by consumers — the state can expect about $75 million in additional sales and use tax revenue if the tax break is extended through the entire year, Knittle said.
The report on the federal tax cut is the first in a series of reports from the Independent Fiscal Office throughout the year. The reports will examine the state’s financial situation and the impact of federal fiscal decisions on Pennsylvanians, Knittle said.
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