Drain State Reserve Funds? More Than Desperation For Dollars Involved


For many Pennsylvanians, this year’s state budget standoff has a dreary and depressing sameness to it.  That is reflected in editorials and letters to the editor, which are timeless in their sentiments of frustration and disgust.

But as veteran politicians and commentators know, no two budget deadlocks are exactly the same.  This year the wild card in negotiations has been played by House Republicans, with their aggressive strategy for draining program reserve funds to help plug the revenue hole.

There is always a large audience among taxpayers for the contention that Pennsylvania government is too big, too costly, too intrusive, too misdirected, and too overcompensated.  A treasure trove of anecdotes supports this view.  The next perfectly run program identified will bring the grand total to one.  Thus, it is hard to find a legislative campaign that does not include promises to vigorously root out the three pillars of corruption: waste, fraud, and abuse.

As a bumper sticker slogan, spending money in hand before asking taxpayers for more is top shelf.  As a general operating principle, it is simple, logical, and defensible.  As a budget stabilization approach, it leaves a lot to be desired.  A major contributor to the state’s structural deficit is the practice of overbooking the value of one-time revenue sources.  This seems to be a flaw in the reserve fund gambit as well.  There is a difference between guessing from the outside what is theoretically available and doing a thorough analysis to decide what is practically available.

The impetus is understandable.  Stymied in their attempts to kick in the front door of streamlining the superstructure of state government, conservatives have found a side door.  If programs cannot be eliminated outright, then an alternative is to deny them the funding they need to run and weaken their justification for continuing.  Takes more time, but the outcome is the same.

For a batch of the targeted programs, draining the reserves can be the start of a death spiral.  Many deals depend on dollars being available when all the factors line up on the private side.  Fewer dollars available means fewer projects undertaken, yielding lesser results.  This will be seized upon as proof of the program being ineffective and unnecessary.  As programs become defunct, if there are corresponding reductions in personnel required, well that is akin to hitting the Daily Double for fiscal conservatives.  The people who run these programs, those who support the aims of the programs, and those who utilize them, all realize that grabbing off reserves may be the beginning of the end.

Albeit on a much smaller scale, this resembles one of the strategies President Trump is attempting to scuttle Obamacare.

It has never been easy to translate the sentiment for smaller state government into a substantial haircut for agencies and programs.  Just look back at the era of sunset reviews.  A lot of time and effort produced useful recommendations on improving operations.  But very few entities reached the end of their taxpayer-funded existence.  Those that did were relatively minor outposts.

Governor Tom Ridge showed how broad public concerns could yield different remedies.  An agency much maligned for its heavy regulatory hand, the Department of Environmental Resources, was broken into two parts, Environmental Protection and Conservation and Natural Resources.  Conversely, two small departments, Commerce and Community Affairs, were combined into a broader and more collaborative Department of Community and Economic Development.  This was mostly about impact and effectiveness, and only tangentially about overall size and spending.

Make no mistake, the reserve funds debate is something of a crossroads moment.  Fiscally, it epitomizes the choice between the politics of the here and now versus long-term strategies.  This is not to contend that every reserve is untouchable, or that all the affected programs are worthy of continuance.  Tax credit programs are routinely reviled as state government inexpertly picking winners and losers.  They should be assessed to determine if performance matches promise.  Not all reserve funds are created equal, so any sweeping statement in either direction – no harm whatsoever versus total destruction – is invalid.

There are ancillary impacts to the reserve fund debate.  If Pennsylvania should decide to dispense with the array of economic incentive and assistance programs, then it needs to fix other crucial elements of the business climate, such as the antiquated tax structure.

If a cutback on spending and shrink state government approach is adopted, it strengthens the argument against imposing a severance tax, for two reasons.  First, less spending eases pressure on finding new revenue sources.  Second, energy supply is becoming a more significant factor in job location and retention in Pennsylvania, one we would be ill-advised to dissipate.

Many commentators dismissively describe this swipe the reserves move as a reflexive demonstration of tax phobia.  It is a more complicated calculation.  With widespread worry about the size and cost of state government, there is never a wrong time to explore avenues for ratcheting back the scope of the enterprise.  There is too little of the hard-eyed analysis of programs this could potentially force.  While it is fair to conclude that maximum draining of reserve funds may not be a sound budget move, there are certainly good government impulses contained in it worthy of pursuing.

David A. Atkinson is an Associate with The Susquehanna Valley Center.


Nothing contained here should be considered as an attempt to aid or hinder the passage of any legislation before the General Assembly.


The views expressed here are those of the author and not necessarily those of The Susquehanna Valley Center.