Where the Budget Stands

As legislators return to Harrisburg after a far too long vacation, it’s time to take stock of the state of the unfinished budget.

In early July, the General Assembly enacted a budget that took many step forwards. It provided new funding for child care and pre-K education, for K-12 education, for the Pennsylvania System of Higher Education; for those who are intellectually disabled and face long waiting lists to get services; and for those for those who suffer from opioid addiction and mental illness.

Yet, as of today, the General Assembly has not managed to pass a funding plan to pay either the budget for the current year, which remains about $900 million underfunded, or for the deficit of $1.5 billion accumulated last year.

Weeks went by after the appropriations bill was passed with no action, but finally the Senate took a step forward. With strong bipartisan support it passed a revenue plan that was imperfect in many ways but got two big things right. Just as Republicans finally did in Kansas and Illinois, Republicans in the PA Senate recognized that we can’t cut our way out of budget deficits. While Democrats and Republicans may still disagree about how much public investment we need, there is broad agreement that government spending, especially for education and training, is critical to our prosperity and that government spending for human services is critical to our humanity. Republicans and Democrats in the Senate agreed that new revenues were needed to balance the budget. And they also, finally, embraced a severance tax on natural gas drilling, albeint one that was too small.

We would have not raised the Gross Receipts Taxes in the Senate Tax Code bill and would have also rejected some of its environmental provisions, but we were heartened to see a bipartisan agreement to fund the budget in one chamber of the General Assembly, and we waited for the other chamber to act — and hopefully improve — the tax code bill.

We waited for the House to act. And waited. And waited. And waited some more.

And nothing happened.

So here we are, on September 11, with the House coming back into session less than a week before some of the consequences of their inaction may soon be felt.

One consequence is that the credit agencies will down-grade the bonds of not just the state, but of county and local governments and school districts across Pennsylvania as well. That could well cost taxpayers hundreds of millions of dollars over the next few years.

The second is that the General Fund will run out of money. This is projected to happen as soon as Friday. Because the state can’t spend money it doesn’t have, the Governor is going to have to continue reserving funds — that is holding back spending that the General Assembly appropriated for this fiscal year. Indeed, Governor Wolf has already reserved almost $200 million. But now he is going to have to go far deeper into the enacted budget to find savings.

There are only a few places that can be cut, as most state spending is mandated by contract, law, or federal regulations. Contract regulates what we pay state employees. Laws — and good sense — prohibit us from doing something like opening the prison doors and letting convicts walk out. And federal regulations prevent us from cutting most Medicaid spending for health care or long-term elderly care without losing billions of federal funds.

There are only two places where deep cuts can be made: education and non-mandated human services for the mentally ill, unemployed, disabled, and unemployed. Closing the deficit for last year and this year would ultimately require about a 12% reduction in these areas. That would mean a cut in state aid to schools of roughly $1 billion.

We know what that looks like. We went through it five years ago and have barely recovered. It means that 20,000 teachers, guidance counselors, and librarians — if there are any left — could lose their jobs. It means that science and technology and music and art classes could end. It means that communities in every part of the state will suffer economically as teachers and other state workers lose their jobs.

The Republicans in the House tell us they have had a truly miraculous revelation that will enable us to avoid all these consequences without raising taxes on anyone. They are going to raid all the special funds that, they say, have accumulated huge surpluses that are just lying around.

As we’ve pointed out, this plan is, at best, the work of amateur back-benchers who don’t really understand the budget, or is, at worst, a deliberate attempt to mislead the public. Contrary to what the Republicans who dreamed up this plan say, their plan will substantially reduce state spending not just for the $200 million the Governor has already reserved and for the state-related colleges and universities they do not fund, but also as a result of their proposal to raid special funds that support a great of deal investment in public transit, environmental protection, and parks and recreation, and other areas.

As Representatives and Senators look more closely at the details of this plan, we expect it will sink of its own weight.

So the budget impasse has now become a budget crisis. We can’t be sure when the worst consequences we’ve outlined will come to fruition. A credit downgrade could come next week or next month. Deep cuts in educations spending may be necessary in two weeks or two months. But no one should doubt that if Speaker Turzai doesn’t bring a revenue bill to the floor that makes it possible to complete the bipartisan compromise on funding the budget sooner rather than later, everyone in Pennsylvania is going to suffer the consequences.

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