For Immediate Release
Contact: Steve Halvonik 717 787-1381
Auditor General Jack Wagner Urges Gov. Rendell, General Assembly to Consider Suggestions to Balance Budget
Says all cost-saving options should be considered before tax increases
HARRISBURG, Aug. 12, 2009 – Auditor General Jack Wagner said today that Gov. Rendell and the General Assembly should consider recent revenue suggestions made by him and several Pennsylvania newspapers as a way of ending the commonwealth’s six-week budget impasse.
Pennsylvania has been without a budget since June 30, although Gov. Rendell did sign a bare-bones “bridge” budget on Aug. 5 that provides funding for state employee salaries and some safety and health-related services.
With budget talks continuing, Wagner said, “For the sake of all Pennsylvanians, I urge Gov. Rendell and the General Assembly to seek a compromise that balances the budget without the need either for severe spending cuts or an increase in broad-based taxes.”
Wagner last month offered seven suggestions that could raise at least $1.3 billion in revenue to close the budget gap. They included:
- Reducing eligibility errors in the state’s Medicaid program, which provides medical assistance to needy citizens. The Department of the Auditor General reported in January that it had found an error rate of 14 percent in a review of nearly 12,000 Medicaid applications in 53 of 67 counties. Medicaid is a $16-billion-a-year program, with approximately 50 percent of the funding provided by the state. “Even if the error rate were only 4 percent, as DPW has recently asserted, eliminating this amount of waste would save Pennsylvania taxpayers $320 million a year,” said Wagner, who emphasized that his goal was to save money by eliminating ineligible individuals from the program, not by cutting the program for those who are truly needy and eligible. Estimated minimum revenue gain for Pennsylvania taxpayers: $320 million.
- Increasing efforts to recoup $3.2 billion in uncollected taxes owed to the commonwealth by individual and corporate scofflaws. In a May 17, 2009 article in the Pittsburgh Tribune-Review, the state Department of Revenue confirmed that figure and indicated that it considers about half, or $1.6 billion, to be collectible. “The commonwealth should make sure that it collects all that it can from tax scofflaws before it asks honest, hard-working taxpayers and struggling businesses to pay one cent more in higher taxes,” Wagner said. He added that uncollected tax revenues could be obtained with the assistance of private-sector collection firms or through a tax amnesty program of the type instituted 14 years ago. Pennsylvania collected more than $93 million through a limited 90-day amnesty program from October 1995 through January 1996, when uncollected taxes were estimated at $1 billion, according to Department of Revenue and media reports. New Jersey reported that its amnesty program netted at least $600 million this year. Estimated minimum revenue gain: $160 million.
- Reviewing all tax credits and tax exemptions and closing tax loopholes provided to select individuals and organizations, which deprive the commonwealth of hundreds of millions of dollars in revenue each year. “The Pennsylvania tax code is filled with tax breaks for special interests, and they should be thoroughly reviewed and either suspended, reduced or eliminated for the duration of this crisis,” Wagner said. Estimated minimum revenue gain: $100 million.
- Offering an early retirement incentive to state employees. “All agencies of state government, including my department, have employees who would be eligible and might be interested in accepting early retirement,” Wagner said. Although such a program would require some upfront expenses, it nevertheless would reduce the long-term cost of state government. A similar proposal should also be considered for all public school employees. Estimated net revenue gain for 2009-10 fiscal year: $50 million.
- Tapping into the state’s Rainy Day Fund by applying half of the state’s $750 million emergency account to the budget deficit. “The Rainy Day Fund was created for just this type of situation,” Wagner said. “If it can’t be used during the state’s biggest economic crisis since the Great Depression, when would it ever be used?” Estimated revenue gain: $375 million.
- Adding table games to Pennsylvania’s slots casinos: Estimated revenue gain: $200 million.
- Asking the General Assembly to return half of its own $200 million budget surplus. Estimated revenue gain: $100 million.
Wagner said that other good ideas have been proposed by several Pennsylvania newspapers. Although he doesn ’t personally endorse every proposal, he said they were worthy of discussion. They included:
- The Philadelphia Inquirer proposed adjusting the percentages of where the state’s slots revenue goes or making the allocation of slots money flexible to help the state during economic downturns.
- The Pittsburgh Post-Gazette proposed tapping the state’s Rainy Day Fund and the Health Care Provider Retention account, which subsidizes medical malpractice insurance for physicians. It also said the state could gain $75 million by eliminating the rebate it pays retailers for tax collection, and it advocated raising the cigarette tax by 10 cents a pack.
- The Harrisburg Patriot-News proposed a tax on smokeless tobacco and on the extraction of natural gas from the Marcellus shale regions of the state. It also supported a tax amnesty program and using Rainy Day funds.
- The Scranton Times-Tribune and Wilkes-Barre Citizens’ Voice both advocated for a tax on smokeless tobacco and cigars, and on the extraction of natural gas, as well as the elimination of the “Delaware holding company” tax loophole, which allows businesses to shift income to related out-of-state subsidiaries to avoid paying Pennsylvania corporate taxes.
Wagner said that his suggestions are in addition to the savings found in the over 5,000 audits his department completes annually. Noting that many state agencies, including the Department of the Auditor General, are facing deep budget reductions for the 2009-10 fiscal year, Wagner said, “Hopefully, with these cuts, we will be able to achieve a balanced budget equal to, or less than, the budget total from the previous year. That should be a goal that’s achievable.
“I strongly urge the governor, the General Assembly, and their negotiators, to take a look at my suggestions, and others’, as part of a comprehensive, bipartisan budget solution. With the commonwealth facing its greatest economic crisis since the Great Depression, we can’t raise taxes on Pennsylvanians who are struggling to make ends meet. We must find a way to balance the budget by doing more with less.”
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the Commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts more than 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s Web site at www.auditorgen.state.pa.us.