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Pennsylvania

Budget gap stymies Pennsylvania legislators

Natasha Lindstrom
| Monday, July 11, 2016, 11:30 p.m.
Pennsylvania House Majority Leader Dave Reed, R-Indiana, speaks to reporters in Harrisburg about negotiations on a tax package to close out budget negotiations on Friday, July 1, 2016.
Pennsylvania House Majority Leader Dave Reed, R-Indiana, speaks to reporters in Harrisburg about negotiations on a tax package to close out budget negotiations on Friday, July 1, 2016.

State lawmakers squabbled late Monday over how to plug a revenue gap of more than $1 billion, spurring concerns about a potential spending freeze that could harm schools and nonprofits still reeling from last budget season's impasse.

“It looks like it's going to be the same thing all over again,” said Deana Nell, executive director of Bridge to Independence, a Braddock nonprofit that provides services for mental health, drug abuse and emergency housing. The 14-employee nonprofit still hasn't paid off $100,000 it had to borrow in September to operate during the nine-month budget stalemate that was resolved in March. “We've managed to keep things going so far, but we're all very frustrated.”

Democratic Gov. Tom Wolf had decided by Sunday to allow a 2016-17 budget bill to become law without his signature at midnight Monday — even if the GOP-controlled Legislature failed to agree how to pay for it.

It immediately raised concerns that any delay beyond Tuesday would prompt a downgrade of Pennsylvania's battered credit rating and a lawsuit by conservative lawmakers that could upend the spending bill.

“I think the next 24 hours will tell the tale of whether we're going to have an agreement or whether all sides retreat back to their own corners,” said House Majority Leader Dave Reed, R-Indiana.

Wolf spokesman Jeffrey Sheridan declined to estimate how long it could take to reach an agreement.

“Conversations are continuing toward reaching agreement on a revenue package,” he said about 6:30 p.m. Monday.

GOP leaders are negotiating a $1.3 billion revenue plan that could include tax increases on cigarettes while clearing the way for online gambling. Broad-based taxes on the likes of income and sales remain “off the table,” House Republican leadership spokesman Stephen Miskin said. House Republicans object to a proposed tax on households using natural gas.

The state's four caucus leaders and Wolf met late Monday to “try and bridge any gaps,” said Miskin, who was hopeful a deal could be reached this week.

“Everybody's goal is to get it done,” Miskin said.

The $31.6 billion spending plan for the fiscal year that began July 1 marks an increase of about 5 percent from last year.

Education advocates say they're pleased with increased funding levels, including slight bumps for all schools in basic education funding, and $25 million more for Pre-K Counts — a 20 percent increase from state-funded preschool programs in 2015-16. Some critics of government spending say the education increases might be too much.

“School districts around the state are going to have to be careful,” said Marc Stier, director of the Pennsylvania Budget and Policy Center in Harrisburg. The left-leaning policy group called Wolf's decision “an unfortunate, yet reasonable, response to a difficult situation” while citing concerns about looming risks — namely credit downgrades that would increase borrowing costs and a freeze in state spending.

On Monday, S&P Global Rating agency put Pennsylvania on its watch list. Moody's issued a “negative outlook” last week, warning that the state's “credit challenges are likely to worsen in the near term absent political compromise.”

Only New Jersey and Illinois have credit ratings worse than Pennsylvania.

“It's irresponsible. It might be weeks or longer before they're even close to passing a revenue package,” said Nathan Benefield, vice president of policy analysis for the conservative-leaning Commonwealth Foundation in Harrisburg. Benefield urged Wolf to use his line-item veto power to make cuts, citing as examples reductions in money slated for boosting tourism, funding lawmaker salaries and staffs and business incentives he likened to “corporate welfare.”

Benefield said he's concerned about cigarette and gambling taxes being “pretty unpredictable sources of revenue that may not come into expectations and that could put us on the hook for another attempt to increase taxes.”

Stier — whose policy group advocates a tax on the “very rich” by targeting capital gains, royalties and investment dividends — argued that “House Republicans seem to think that by not raising taxes they can ultimately force spending cuts that people don't want.”

“The House Republicans are playing a game of chicken with the governor,” Stier said.

Under the state constitution, the General Assembly must ensure that appropriations “shall not exceed the actual and estimated revenues and surplus available in the same fiscal year.” It does not require the governor to sign or veto it, and “taking no action is not any form of approval,” Sheridan said.

Education and human services are two areas in which Wolf has latitude to withhold payments, so they could end up being the first hurt without a revenue plan in place, noted Stier, who said he can't recall seeing the Legislature do so much “finessing of the constitutional requirement” to pass a balanced budget.

“The last thing a school business manger wants is uncertainty in any aspect of their financial situation,” said Jay Himes, executive director of Pennsylvania Association of School Business Officials. He pointed out that last year, state transportation revenue fell short of expectations, and districts did not receive reimbursements for Social Security payments.

“That was with all of the revenues in place, and we still ended up with less dollars for the schools,” Himes said.

Last year's impasse forced cash-strapped school districts and human service agencies to obtain loans or extra lines of interest-bearing credit. Some organizations — including homeless shelters, domestic violence centers and preschools — laid off employees, reduced services or shut down in late fall.

The state has not reimbursed schools or service agencies for any impasse-related costs. Wolf proposed reimbursing as much as $10 million but the Legislature failed to enact such a measure.

“It is disappointing, absolutely,” said Himes, “because those who had to do that are the districts that are in the least beneficial positions.”

The Associated Press contributed. Natasha Lindstrom is a Tribune-Review staff writer. Reach her at 412-380-8514 or nlindstrom@tribweb.com.

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