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Run for the Financial Hills

The fiscal situation of the Commonwealth of Pennsylvania and municipalities within is incredibly precarious and bound to only get worse. In yesterday’s New York Times Business Section, the abominable fiscal situation of the City of Harrisburg was featured as a clear example of what might and will happen to other local governments. Harrisburg basically defaulted on its most recent bond payment last month, being bailed out by the Governor and the State at the last minute.

It is quite possible that the sovereign City of Harrisburg will have to file for bankruptcy protection. Last week, elected State Auditor General Jack Wagner warned that PA “face[s] the worst fiscal crisis in our history.” It is predicted that there will be a $5 billion budget deficit on a budget of $28 billion for the Commonwealth.

Since the PA Constitution requires a balanced budget, either expenditures will have to be cut significantly, taxes raised, or a combination of both. Since the appropriation from the state to PSU is a non-preferred appropriation, it is quite possible that it would be cut significantly to help balance the state budget.

The Borough of State College is going to have a difficult budget situation as well, though probably augmented by some revenue enhancements (tax increases). Thomas Fountaine, the borough manager, said that pension costs alone are going to go up about $250,000 next year. However, through attrition, personnel costs have been kept down. Nonetheless, in the past 10 years, tax revenue has not kept up with the ever increasing costs of providing services.

Higher taxes will ultimately be the upshot, as well as reduced government services. To use a cliché, this is just the tip of the iceberg, the end of act 1. The coup de grâce is just a few months or years away, and it will adversely effect every citizen of the Commonwealth and the country.

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