HARRISBURG, June 24, 2002 – Pennsylvania faces long-term budget problems that will probably result in a deficit of close to $1 billion or more by fiscal year 2003-04, state Senator Vincent Fumo warned today.

     Fumo, of Philadelphia, the Democratic chairman of the Appropriations Committee, made his remarks as the featured speaker at the monthly Pennsylvania Press Club luncheon.

     "The governor and the Legislature will not solve the state’s fiscal crisis this week, they will merely postpone the crisis," Fumo said.

     The budget of the current fiscal year that ends in six days will be balanced through the use of temporary funding or spending cuts totaling about $1.2 billion. Most notable among them will be the use of as much as $1 billion of the Rainy Day Fund.

     With the Rainy Day Fund then mostly depleted, the Republicans controlling the passage of the 2002-03 budget this week will turn to additional temporary funding sources to help balance next year’s books. Those include $280 million from refinancing Pennsylvania Industrial Development Authority bonds, decreasing by $137 million the size of the reserve held to pay tax refunds, $174 million from accelerating escheated property to collect three years worth next year, drawing $100 million more than usual from State Liquor Stores, and more.

     Both this year and next, they will balance the budget with unspent tobacco settlement money, a decrease in the scheduled reduction in the Capital Stock and Franchise Tax, a reduction in funding for Environmental Stewardship, and a reduction in funding for the Keystone Parks and Recreation Fund.

     "The problem is, those short-term funding sources have to be replaced in the next fiscal year just to stay even. You can paper over your deficit with non-recurring revenue, but unless you get phenomenal economic growth pretty quickly, you’ve created an automatic hole in the following year’s budget," Fumo said.

     According to the most reliable forecasts, the economy will not expand enough to allow revenue growth to fill the gap, even with the additional money from a higher cigarette tax and higher fees for trash disposal in landfills.

     "Twelve months from now when we are doing the next budget, I estimate that we will probably be staring at a deficit of approximately $800 million for fiscal year 2003-04," Fumo said.

     His analysis is based on WEFA’s most likely scenario for economic growth. Under the best-case scenario, which WEFA rates as only 25 percent probable, the budget for 2003-04 would have a relatively small surplus. Under the worst-case scenario, which WEFA also rates as 25 percent probable, the state could face a shortfall of more than $2 billion.

     "We are going to spend more money than we take in this year. We’re going to do the same thing again next year," Fumo said. "Thanks to the commonwealth’s current fiscal management, Pennsylvania is living on borrowed money – borrowed from the future. Thus, we are living on borrowed time in an economic sense. The next governor and the next Legislature will have to deal with a massive budget problem."

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Click here to see three charts showing the state fiscal situation.