A good state budget is good for business

Just before midnight June 30, in the waning minutes of the 2010-11 fiscal year, Gov. Tom Corbett signed into law a new budget. The $27.15 billion spending plan is a victory on many levels.

The last eight Pennsylvania budgets weren't decided until after the start of the fiscal year - sometimes long after. An on-time budget was a high priority.

But more historically and importantly for the state's fiscal integrity, the fiscal 2011-12 general fund budget cuts total spending by 4.1 percent. That fact alone makes this a good budget for Pennsylvania's business community.

In March, I wrote in these pages supporting the broad themes outlined by Corbett in his address to a joint session of the General Assembly. I meant every word of that commentary, but I wouldn't have bet the house on getting it passed.

Reporters scrambled to find an example of the state reducing spending over a previous year. Some think it's happened a handful of times in the last 40 years, but others report searches going back through 80 years of records have come up empty in terms of real budget cuts.

In government budgeting, any increase that is less than the rate of inflation is usually called a "cut." This year was historic and important.

The savings amount to roughly $1.2 billion in this year, but more over time as spending is usually compounded.

Through a reduction in the state's workforce, a streamlining of programs, and the appropriations cuts, the cost of administering state government will drop by 10 percent over the next four years, according to the governor's staff. As U.S. Sen. Everett Dirksen said many years ago, "A billion here and a billion there and soon you're talking about real money."

It is also important to note there are no new taxes in the budget, and the phase-out of the capital stock and franchise taxes begins again on schedule. That will save Pennsylvania businesses $70 million in the current year.

The research and development tax credit was increased from $40 million to $55 million, and the film tax credit was maintained. The budget also increases the bonus depreciation deduction to 100 percent for property placed into service before January 2012.

And while not a budget issue per se, meaningful reform of the joint and several liability rules - the Fair Share Act - was passed after a 10-year fight. This step will reduce the cost of legal defense for hospitals, nonprofits, local governments, the commonwealth and the business community.

Saving money is an important signal to those entrepreneurs who might risk their capital to expand or create businesses and jobs in the commonwealth. They need confidence that once they commit themselves to the enterprise, the rules and price of the game won't change.

We're not done. We still have to find a way to cut costs from our unemployment compensation system to forestall federally mandated tax increases to repay the debt to the unemployment compensation fund. And we need to lower the cost of our public pension system so we can tackle unfunded liabilities.

There will be scarce resources for infrastructure for many generations to come, so we need to find ways to do more with less.

Business owners and senior managers have been aggressively driving cost-cutting for a decade now. It's been painful, but the firms that survived are stronger, more productive and better able to compete globally.

Some firms didn't survive. People lost their jobs and are hurting. There is no denying those facts. But the public sector cannot be immune from the same realities. Some government programs will not survive and some public employees will lose their jobs.

The pain, however, doesn't have to be permanent. By making government more efficient and growing private sector jobs, we can re-employ people, grow wages, spread prosperity and - within reason - even spend a little more through government and public programs.

Some trade-offs were made in this budget process. That's what the political process is all about. Higher education received significantly more money than Corbett proposed in March but still nearly one-fifth less than last year. Spending for K-12 was also cut, albeit less than the governor proposed. Eligibility reforms and better enforcement will seek to save about $500 million in welfare and Medicaid spending.

These debates about priorities and public goals are healthy and necessary.

There is a long-standing fight between those who believe that zero-based budgeting is the only legitimate decision-making course, and those who think incremental budget-making is inevitable. Maybe both sides are right. But certainly, there are times when we have to step back, take a deep breath, reassess priorities and options, and then take the courageous action that puts us back on course.

In all, it will be a very good budget for the commonwealth and sets a strong tone for the coming years.

[Sidebar]

These debates about priorities and public goals are healthy and necessary.

[Author Affiliation]

David W. Patti is the president and chief executive officer of the Pennsylvania Business Council in Harrisburg. Email him at dpatti@pabusinesscouncil.org.