KEISLING: Gov. Tom Wolf uses budget, and deficit, as policy bludgeon to shape debate

By highlighting long-ignored problems, Wolf was able to propose his own political solutions in his first budget.

Gov. Tom Corbett, to his usual muddled way of thinking, no doubt imagined that by creating a $2 billion-plus state budget deficit he was leaving behind a destructive land mine for Tom Wolf, the Democrat who defeated him at the polls.

But Gov. Tom Wolf turned the tables, and conjured that deficit into an opportunity.

How Wolf turned the tables is not only an interesting study in crisis management in our age of divided government and gridlock, but also provides insights into Wolf’s leadership style.

To understand what’s happening now in the state budget process, it helps to understand the problems that Gov. Wolf inherited when he won the governor’s office last November.

Coming into November’s election, Wolf and most everyone else watching state government knew Pennsylvania’s fiscal situation was dire.

For more than a year the state’s Independent Fiscal Office had been projecting a $1.2 billion structural budget deficit for 2014-2015, with more red ink for out years. And those numbers kept growing.

Making maters worse, the projected deficit was propped up by $2 billion in one-time, smoke-and-mirrors budget tricks, the Fiscal Office reported.

Rather than pay for ongoing programs out of the general fund, Corbett had been raiding funds set aside in special accounts to make up the difference.

“An example of a one-time measure is the use of Special Funds to supplement programs normally funded out of the General Fund,” Wolf’s transition team reported this January. “For example, the budget transferred significant Department of Human Services spending to the Lottery Fund and the Tobacco Settlement Fund. Using Special Funds like these to balance the General Fund Budget puts at risk the programs that have traditionally been supported by these Special Funds and calls into question whether the funding demands put on these Special Funds are sustainable.”

“We have a mess,” Wolf repeatedly said coming out of the election.

What was the governor-elect to do?

Wolf quickly appointed a Budget Deficit and Fiscal Stabilization Task Force to look into the state’s fiscal health.

The task force released it findings even before Wolf’s inaugural in January.

Corbett’s smoke and mirrors, it turned out, were smokier than thought.

“Rather than addressing the structural deficit realistically, and even though deep and unprecedented cuts were made in many appropriations, the Corbett administration still increased reliance on unsustainable revenue sources and temporary expenditure deferrals as a means to balance the 2014-15 budget,” the task force reported. “It appears that no potential source was spared, to the point where even Special Funds are facing future deficits that will need to be made up from the General Fund.”

Exacerbating the problem, even as Gov. Corbett slashed important state programs like education and health care, he lowered corporate taxes.

“In 1994, taxes levied directly on businesses accounted for more than 25 percent of total state General Fund tax collections. Soon that percentage will drop below 15 percent,” the task force reported. “In 2013-14, taxes levied directly on businesses actually declined for the first time in a recovering economy, an extraordinary event.”

Wolf’s task force also noted such problems as growing unfunded pension liabilities, and a state Rainy Day fund that had fallen to a paltry $230,000 — less than the value of many houses these days. The bank clearly was broke.

All this created a rare political opportunity for Gov. Wolf.

By highlighting these long-ignored problems, Wolf was able to propose his own political solutions in his first budget.

Wolf proposed such initiatives as increasing state funding for K-12 education; taxing Marcellus shale gas producers; offsetting real estate property taxes with other taxes; and a host of other policy shifts unpalatable to Republicans in the legislature, and which certainly wouldn’t have been contemplated under Corbett.

The irony is that Republican majorities increased in both houses of the legislature this November, even as Democrat Wolf was elected governor.

When Wolf’s budget proposal landed in March, some Republican lawmakers were quick to call it dead on arrival, with no chance of passing.

Trouble is, by law, a state budget must be approved by the legislature and signed by the governor by June 30, when the fiscal year ends.

By putting a group of people in a room to look at the fiscal problem and to come up with a plan — any plan — Wolf seized the opportunity to control the agenda. He out maneuvered Republican lawmakers who were content to sit on their highly paid backsides and do nothing.

It soon became apparent that the Republicans had no plan of their own, other than to keep doing what they’ve been doing for years, which increasingly looks politically and fiscally untenable.

When the boat is sinking, after all, sooner or later you have to do something more than hold press conferences and blame Barack Obama.

Some Republican lawmakers went so far as to complain they’d been out-foxed by a Wolf. After twelve years of Ed Rendell and Tom Corbett, legislators were used to party leaders simply holding press conferences to blame each other, and getting nothing done.

The depths of political bankruptcy in Harrisburg is apparent when you realize that no one for years, before now, has come up with a plan, and legislators don’t know how to deal with one.

With the budget deadline ticking down, Republicans still continue to dither and complain about Wolf’s proposed initiatives.

But what’s their plan?

Gov. Wolf, meanwhile, continues to meet with constituencies and play up the benefits of his plan.

The new administration asked local school districts to submit proposals for spending the additional revenue they would receive under Gov. Wolf’s proposed budget, and brokered a deal with state-owned colleges to freeze tuition in return for more state funding.

And last month Wolf’s administration asked pre-schools to apply for an additional $120 million in funding proposed for them in Wolf’s budget.

Republican lawmakers quickly cried a wolf in the fowl’s nest, saying the budget hasn’t even been approved yet, and here’s the new governor talking with educators about how they’ll spend the money.

Republican legislative leaders complain they are being set up by Wolf to take the blame with voters if his initiatives stall in the legislature.

Well of course they’re being set up to take the blame. This is hardball politics, not a trip to a petting zoo.

Wolf’s team of course cagily denies setting anyone up.

School starts in the fall, they point out, and the administration simply is urging state educators to start planning.

If Republicans don’t realize it by now, it’s all about the plan. In January, Wolf’s budget task force said as much.

“This fiscal crisis presents significant challenges, but it is an opportunity to transform the way the Commonwealth operates with a comprehensive plan that will endure and stabilize the Commonwealth’s finances for the long term,” the task force wrote.

Breaking the budget logjam is only one benefit to Gov. Wolf’s novel approach.

By talking about such things as real estate property tax reform, studying a looming pension crisis, and taxing Marcellus shale producers, Tom Wolf has jump-started debate on a host of important issues that have languished for years in Harrisburg.

I’ll talk about some of these initiatives in future columns.