Ardo asserts, for instance, that Pennsylvania has more jobs now than when Rendell took office, as though every single new job is created by government, not the private sector.  He ignores the fact the Pennsylvania has lagged behind the rest of the nation in job, population, and income growth since Rendell took office (ranking 40th, 42nd, and 40th in those categories since 2002).  More importantly, states that spend the most on “economic development” (Pennsylvania ranks second) have slower economic growth than the rest of the U.S, whereas states with lower taxes outpace high tax states (again, PA is on the wrong end of the spectrum) 

Ardo’s rhetoric can’t quite explain why residents keep “Movin’ Out” of Pennsylvania to other states.  Pennsylvania is the 4th highest “outbound” state, according to United Van Lines.  The Commonwealth lost 12,000 residents to other states last year, and 58,000 since 2000, according to the US Census.

Pennsylvania gets low marks from almost all independent rankings of the state’s economic competitiveness.  Forbes considers PA the 10th worst state to do business; the Beacon Hill Institute Ranks PA 39th, ALEC ranks the state 44th, and CEO Magazine ranks us 37th. 

Most blatantly false is Ardo’s statement that “Pennsylvania [is]on stronger economic footing than any other large state in America.”  Isn’t Texas still considered a “large state”?  In 2008, Pennsylvania lost 77,000 jobs; Texas added 155,000, despite a national recession.  Since Rendell took office, Pennsylvania has added 109,000 jobs; Texas has added 1.03 million – over nine times as many.

Ardo is correct when he compares Pennsylvania positively to our neighbors, particularly New York and New Jersey, whose economies and state budgets are in bad shape.  Unfortunately, Rendell seeks to imitate the failed policies of these states, rather than those of thriving states.

House members got to pick from more than a dozen choices, ranging in price from $30 to $90. Each was embossed with the lawmaker’s name at an additional cost of $15 per book, according to public records. …

State Rep. Chris Ross (R., Chester) got a copy of the Quran. He said yesterday that he took the Jan. 6 oath on his own Bible, but ordered the Muslim holy book because he had always wanted to read it.

State Rep. Dan Frankel also got a Quran, but it was an ordering mistake. He traded it in for another copy of the Torah – the sixth he has received from taxpayers since first being elected in 1998.

This is hardly the only example of taxpayer funding to be used to fund the personal libraries of Pennsylvania lawmakers.  Rep. Mark Cohen bought over $30,000 in books at taxpayer expense over three years.

Lawmakers make the point that is a “small ticket item” in a $29 billion budget, and they’d be right.  But as we have pointed out, there are hundreds of “small ticket items” in the budget, costing taxpayers millions (or billions, depending on your cutoff point).  Spending like this makes it hard to justify why Pennsylvania needed/deserved a bailout from federal taxpayers.

Indeed, our latest report,
Government on a Diet: Spending Tips 2009, identifies close to $5 billion in wasteful state spending.  Ceremonial bibles are not specifically identified, though legislative funds are, under the category “Self-Service Government” – extravagant examples of spending that benefit lawmakers/government officials, not the general public.

Among the Proposals:

• Implementing constitutional or statutory Spending Limits. 
• Eliminating all state discretionary funding or “Walking Around Money” (WAMs). 
• Reducing the state Personal Income Tax to the pre-Rendell level of 2.8 percent.  
• Repealing Pennsylvania’s prevailing wage mandate and tolling of Interstate 80 (Act 44 of 2007). 
• Reducing the overall economic burden on Pennsylvania’s job creators by completing the phase-out of the Capital Stock and Franchise Tax and making Pennsylvania’s Corporate Net Income Tax (CNI) more competitive with other states. 
• Finally, enacting a 2009-2010 state budget that contains no new taxes, no new spending and no new borrowing.

Matt Brouillette’s Capitol Domes post hammers Governor Rendell for his “Do as I say, not as I do” rhetoric, namely creating a new position for his buddy Dan Surra while threatening these layoffs. This follows Rendell’s freezing workers pay while shoveling out grants to snowmobile clubs, unveiling a website about a woodchuck in a car accident, and most recently dolling out $12 million in grants for agriculture and tourism and $3.5 million for the “President’s House” project. 

The Burlington County Times editorializes that there can be “no sacred cows” in the budget, presumably that includes jobs for Rendell’s buddies and his pork-barrel projects.

Suppose you were faced with a major revenue shorfall and had to prioritize spending. Would you:

1) Give employees their promised raises or
2) Produce a website/video of man dressed in a groundhog suit being hit by a car to “promote tourism,” and send out a news release based on the belief that people will enjoy the site?

If this seems like a rhetorical question, you aren’t qualified to be Governor of Pennsylvania.

Thanks to Tony Phyrillas for highlighting this bit of absurdity.

Item #2

Despite a state hiring freeze, and an $814 million revenue shortfall, Governor Rendell has created a new position – paying $95,002 annually – for former state representative Dan Surra, who was ousted in the November election.

I am pretty cynical about politics/politicians, but the gall of this surprises even me. Special thanks to commenters on the news story,  GrassrootsPA, and Tony Phyrillas’ blog for reassuring me that I’m not the only one scratching my head.

This data coincides with recent census data, which showed the Pennsylvania lost 11,500 residents to other states from July 2007-July 2008.  Despite what Governor Rendell may claim about his success restoring Pennsylvania to prosperity, this is the continuation of a long trend in which Pennsylvania’s economic and tax climate drive residents and businesses away.

• This shortfall exceeds the entire twelve-month shortfalls for fiscal years 1990-91 and 2002-03, respectively—budget cycles which resulted in the two largest tax increases in Pennsylvania history and significantly hindered the state’s economic performance.
• In his mid-year budget briefing, Governor Rendell projected that the fiscal year shortfall would reach $1.6 billion.  As a percentage of estimates, the current shortfall is ahead of this pace, and a larger budget shortfall is likely.

HTML clipboarda{text-decoration:none;}

Governor Rendell’s plan to fix the revenue gap has five parts:

• $500 million in budgetary freezes, including $36 million from independent agencies;
• $174 million from revenue from Marcellus Shale lease payments;
• $101 million in additional lapses;
• $375 million from the “Rainy Day Fund” (half of the current fund); and
• $450 million from a federal bailout of the states.

However, it is not a lack of revenue, but over-spending which resulted in the current budget deficit:

• Between fiscal years 2002-03 and 2008-09, total state spending increased 35.8 percent ($16.2 billion), well exceeding the rate of inflation of 17.4%.
• In Government on a Diet: Spending Tips 2008, a report released in February, the Commonwealth Foundation identified billions in potential spending reductions that would not harm Pennsylvania’s most vulnerable citizens in need of taxpayer assistance.
• Governor Rendell’s revised budget 2008-09 represents a 1.64% decrease from the enacted budget, but a 2.27% increase over 2007-08; it would be hard to argue we have “cut to the bone.”

Additional Resources

The latest revised budget, with Rendell’s budget freezes (excluding those he is asking of independent agencies, including the legislature and judiciary) is now online. The Commonwealth Foundation has also prepared an Excel file of the revised budget for public discussion.

More Pennsylvania budget resources can be found here.
# # #

The Commonwealth Foundation (www.CommonwealthFoundation.org) is an independent, nonprofit public policy research and educational institute based in Harrisburg.

The multiplier effect was the creation of John Maynard Keynes and his adherents who argued that government spending resulted in more economic growth because it multiplied.  That is, if the government spent $1 million to build a road, construction firms would then have $1 million to spend on other goods – likely spending only a percentage of that, say $800,000 on clothes.  The clothe-makers then spend that money on something else, and so on.  Keynesians argue that this works better than tax cuts (i.e. leaving money in the hands of consumers) because they will save some of it.

This theory has largely been discredited (discussed previously here and here) but remains en vogue among some, including the Rendell administration.  The new analysis pinpointed by Mankiw find that the spending multiplier is between one and 1.4 – i.e. a dollar spent by government increases GDP by one dollar.  However, another study finds that the multiplier effect for tax cuts is around 3.

Why is Keynes so wrong?  And why are tax cuts so much better?  Part of the reason is that “savings” (which Keynes believed undermined the multiplier effect) is actually good for the economy – in translates into investment, which translates into productions.  The other reason is that lower taxes provide incentives to be more productive, while higher taxes discourage wealth creation.

Mankiw Concludes:

My advise to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in ec 10. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes.

I also tackled this issue in my latest commentary on “economic development spending” and economic growth.

For lists of grants, it takes some searching. The Department of Community and Economic Development “Investment Tracker” has grants searchable by program name, date awarded, and county. Department of Community and National Resources grant info can be found here, but you have to download a Word document to get grants awarded after mid-2007 (and no information is available yet on grants after April 2008).

The list of programs we have identified as WAMs is here.

 All totaled, Rendell’s cuts from the enacted budget total a bit over $400 million, not enough to close the revenue shortfall, already at $658 million.  The latest cuts are not available yet, but the revised plan as of October is available online.  Note that even with these cuts, the current spending plan represents an increase of about $700 million over last year’s budget.

We have suggested spending like it’s 2007, and have identified billions in wasteful state spending, including the notorious WAMs. Senator Eichelberger has issued a cry for cuts from legislators’ spending, naming many of the same items we have identified – calendars, public services advertisements, taxpayer funded newsletters and websites, and more.  Eric Epstein also has some ideas for about $300 million in cuts.