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December 11, 2013

State braces for $839 million deficit

HARRISBURG —  Gov. Tom Corbett’s number didn’t come up in the Pennsylvania Senate this week, only adding to the pressure he and legislators will face when they return in the new year to face an $839 million budget hole.

The Senate this week flirted with a plan to hand off control of the state lottery to a private company and allow electronic gambling, including keno, in bars. Corbett had urged the idea in a budget address last February as a potential source of $50 million for senior programs.

But senators balked at voting on such a controversial measure without first holding public hearings, wrapping up their work for the year on Wednesday.

The Senate’s departure also means the Legislature will finish 2013 without dealing with pension reform, casting a far larger shadow over the budget for the 2014-15 fiscal year, which takes effect next June.

The state’s pension obligations are expected to grow by $600 million in the next budget, with most of that tied to pension costs for school employees, according to the state’s Independent Fiscal Office.

Republicans have suggested a variety of ways to shift from defined-benefit, or fixed payment, pensions for state and school employees. But neither chamber of the Legislature has acted on any of those plans.

And the likelihood of passing pension reforms may shrink as the calendar turns to 2014.

Republican state Rep. Brad Roae of Crawford County said other lawmakers have been hesitant to tamper with pension benefit, which would draw the ire of powerful public sector unions.

“It’s more difficult in an election year,” Roae said.

Corbett’s earlier bid to privatize the lottery without approval from the Legislature was derailed by union opposition and objections from Democratic Attorney General Kathleen Kane.

This time, Senate leaders described plans to privatize the lottery as an attempt to “pull a rabbit out of a hat” to do something positive despite the headwinds of the looming budget shortfall, said Sen. Elder Vogel, R-Lawrence County.

Just last month the Legislature voted to allow bars and taverns to use small games of chance — a gaming expansion that supporters say will mean $150 million a year in revenue for the state.

Senate leaders expect to revisit the lottery privatization bid in 2014, but there are lingering questions.

“I have been opposed to efforts of Gov. Corbett to implement a management agreement on his own,” said Sen. John Gordner, R-Columbia County. “I will consider any legislative proposal but continue to have concerns about the proliferation of gaming and gambling and what I believe is a finite amount of disposable income available for it.”

Vogel said he doesn’t believe adding keno will drain business from the state’s existing gambling opportunities.

“We haven’t reached the dilution point yet,” he said.

But looking to a gaming expansion to generate money is like taking pain medicine without treating the underlying medical problem, said state Rep. Fred Keller, R-Union County.

Confronting the pension crisis is the way to treat the state’s budget problem, Keller said, adding that a successful push to pass transportation funding shows that legislators can get things done when needed.

Senate Democrats counter that Corbett has already rejected one of the best ways to close the budget gap — Medicaid expansion. They estimate it could save the state $400 million.

As part of the Affordable Care Act, the federal government is supposed to shoulder all of the cost of benefits for people newly eligible for Medicaid.

The state would see savings by shifting people now in programs funded through the state Department of Public Welfare into an expanded Medicaid program, said Ben Waxman, a spokesman for Sen. Vincent Hughes, Democratic chairman of the Senate Appropriations Committee. Numerous studies, including one by the Independent Fiscal Office, identify those projected savings.

But the Corbett administration has fretted about costs of running an expanded Medicaid program, as well as “woodwork costs,” or the expense of benefits for people already entitled to get Medicaid but who don’t now participate in the program. Benefits for them will still cost the state, and debate over growing Medicaid is said to coax some of them out of the woodwork.

Instead of saving $400 million, the Corbett administration has suggested that expanding Medicaid will make the state’s budget problem worse, costing $322 million in the first year.

John Finnerty works in the Harrisburg Bureau for Community Newspaper Holdings Inc. He can be reached by email at jfinnerty@cnhi.com or on Twitter @cnhipa.

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