When Gov. Tom Wolf delivers his budget address Tuesday, he faces yet another year of billion-dollar deficits and few politically viable options to fill the gap.

The Democratic governor will not seek an increase in state income and sales taxes to address the large deficit, since the Republican-controlled Legislature rebuffed his previous efforts to do so during his first two years in office. So far, Wolf has not indicated whether he again will ask lawmakers to approve a state severance tax on natural gas production.

Pennsylvania has an overall budget deficit of nearly $3 billion in fiscal 2017-18 as costs for public pensions and human services outpace revenue growth, according to the state Independent Fiscal Office.

The revenue shortfall for the $31.5 billion fiscal 2016-17 budget is $416 million, according to the state Revenue Department. This reflects collections of state corporate income, personal income and sales taxes lower than anticipated.

Governors and lawmakers dealt with red ink in various ways since the 2009-10 state budget at the peak of the Great Recession, but hiking the income tax or sales tax rates is not one of them.

The 2018 governor’s race already is shaping the budget debate, said G. Terry Madonna, Ph.D., political analyst and director of the Franklin & Marshall College poll.

Wolf is in re-election mode and already faces a declared GOP challenger with the candidacy of Sen. Scott Wagner, R-28, York, he said. The governor faces a legislature that is more conservative and opposed to tax hikes than when he took office in 2015. He turned instead to cost savings and government restructuring to help tackle the state’s fiscal problems.

“The polls show voters don’t want general tax hikes,” said Dr. Madonna.

The budget address is followed by several weeks of Appropriations Committee hearings and then counter proposals from the Republican-contr olled Legislature in the spring. The legal deadline for adopting the budget is June 30, but that often is missed.

Cutting expenses

Wolf announced plans late last month to merge four agencies into a new Department of Health and Human Services — a move he said will save the state tens of millions of dollars.

He wants to merge the departments of human services, health, aging and drug and alcohol programs to launch the new agency by July 1, but needs legislative approval. A fuller savings estimate will be provided Tuesday.

Nonprofit agencies providing human services are paying close attention to the proposed HHS merger.

State officials need to proceed carefully with any merger so the delivery of services to those in need of them isn’t harmed, said Bill Jones, president of the United Way of Wyoming Valley.

“Quality over speed would be our hope,” he said.

Jones said he wants to know how one agency can act as a regulator, issue licen ses and oversee the delivery of services at the same time.

Sen. Lisa Baker, R-20, Lehman Township, heads the Senate Health and Human Services Committee, one of four panels that likely will hold joint hearings on the HHS merger.

“I think we need to look from a regional perspective,” Baker said of the merger’s potential impact.

Rep. Marty Flynn, D-113, Scranton, a House Appropriations Committee member, said he supports the HHS merger, although he wants to see the cost savings estimate.

“We in the General Assembly will have something to say about what this (merger) looks like,” said Sen. John Blake, D-22, Archbald, who sits on the Senate Appropriations Committee.

Also on the cost savings side, Wolf announced the closing of the state Correctional Institution at Pittsburgh in Allegheny County, predicted to save an estimated $80 million. He decided to spare SCI-Retreat in Luzerne County, SCI-Waymart in Wayne County and SCI-Frackville in Schuylkill County from closure based on local economic considerations.

An economic impact analysis done by several state agencies concluded that Allegheny County had the lowest unemployment rate of the other three host counties and it would be easier to find a new use for SCI-Pittsburgh.

The governor also announced the closing of the Hamburg State Center in Berks County for mentally and developmentally disabled individuals to save an estimated $39 million in annual operating expenses.

He moved to consolidate information technology and human resource services, eliminate thousands of vacant state jobs and expand review of state office leases.

Rising costs

Despite Wolf’s emphasis on finding savings, the state continues to deal with skyrocketing costs for public pensions and public debt.

State government will pay $304 million more next year to support pensions for state government and school district employees and $133 million more to pay off existing debt, according to the governor’s budget office.

The governor said his priorities include preserving spending for public education, human services and curbing opioid abuse. He wants to spend $10 million more to provide Naloxone, a medication to reverse drug overdoses, to law enforcement and emergency responders.

In addition, Wolf and lawmakers face uncertainty as Washington considers replacing the federal Affordable Care Act, the gateway for an expansion of Medicaid during the past two years to include more than 700,000 low-income Pennsylvanians.

The consequences of a full ACA repeal and corresponding rollback of the Medicaid expansion would be a new wave of emergency room visits, increase in uncompensated health care costs for hospitals and a setback to efforts to combat opioid abuse since the expansion covers treatment for substance abuse for nearly 125,000 Pennsylvanians, Wolf said last week.

Washington provided $2.8 billion to pay all costs for the first year of Medicaid expansion in 2015, according to the latest figures provided by DHS.

Pennsylvania’s share of the costs of Medicaid expansion will be $200 million in fiscal 2017-18, the department said.

Wolf said his budget proposal will not contain a dollar cost estimate to Pennsylvania if the Medicaid expansion is rolled back.

Pennsylvania needs new dependable revenue sources to overcome a stubborn deficit that keeps growing, according to a recent report by the Pennsylvania Budget and Policy Center, a Harrisburg think tank that supports a severance tax.

One way to achieve this is to revamp the state personal income tax to apply it more fairly based on personal wealth, the report said.

The private market-oriented Commonwealth Foundation said state government can realize immediate savings by cutting spending for several transportation programs, business support programs and a park and conservation program.

Meanwhile, stat ewide associations representing local officials are making specific requests for state aid next year.

Even with a $200 million boost in the state schools subsidy in the current budget, many school districts are treading water financially as increases in costs for public pensions, employee health care, charter school tuition and special education continue, according to the Pennsylvania Association of School Business Officials and Pennsylvania Association of School Administrators.

“It is discouraging to see that a significant number of school districts across the state have continued to cut programs, reduce staff and increase class size for a sixth consecutive year,” said Mark DiRocco, PASA executive director.

The state needs to restore a 10 percent cut in aid made in 2012, to the county-run human services programs, said the County Commissioners Association of Pennsylvania. The 67 counties are implementing a block grant for several human service programs as they still recover from going without state aid during the 2015-16 budget stalemate, according to CCAP.

Contact the writer:

rswift@timesshamrock.com