Updated July 14, 2017 with additional resource articles and links below blog.
Stay tuned: The House returned on Saturday, July 22nd (with no progress made on a revenue package to support the new budget) and is currently adjourned upon a 6 hour “call of the Chair”. The Senate is expected to return on Wednesday, July 26th.
Discussing the budget process, its many machinations and sharing best predictions for the ever-sought “end-game” is an ever-evolving conversation. It may not have gone unnoticed that this topic has evoked emotive expressions (along with a few colorful metaphors) from me every budget session. Time and again, many have heard me express that I had never seen a budget year like this in over 30 years…, in over 35 years…, and indeed, now …. in over 37 years. So, as I provide everyone with the latest update on the 2017-18 FY budget, what I can say for certain is: “If my past expressions and statements were food for laughter, this year we can host a banquet, because its “déjà vu all over again”, both for the state budget and my state of mind.
The Budget is Now Law
The $32 billion state budget lapsed into law at the stroke of midnight on July 10th, the third spending plan in a row to become law without Governor Wolf’s signature. The bi-partisan crafted spending package overwhelmingly passed the State Senate and House on June 30th by a combined total of 216 YES votes and only 34 NO votes. It was hailed by the Governor, legislative leaders of both parties, and “rank and file” Senators and House members as an on-time budget that kept the state’s spending in check while making key investments in public schools, intellectual disability programs, public libraries, economic and community development initiatives, and in efforts to fight the opioid and heroin addiction crisis statewide. Good will had prevailed and was expected to continue with the remaining ancillary budget bills.
However, swiping the credit card is always simpler than paying the bill. Since June 30th, agreement to pass the accompanying legislative package to pay for the spending plan has been elusive. The overall challenge – how to pay for a current FY budget that includes $800 million in additional spending on top of a 2016-17 FY which carries forward a $1.4 billion deficit – all while avoiding a broad-based tax increase of any sort.
How To Pay For It
Just after passing the “spending plan”, all parties (with a few exceptions) maintained a relatively positive tone as caucus leaders labored to find agreement to raise the needed revenue to fill the $2.2 billion budget gap with recurring and one-time funding streams. In the mix have been the Governor’s proposed multi-agency merger (Departments of Human Services and Health as well as the Department of Corrections and Board of Probation and Parole); a plan to securitize a portion of the state’s tobacco settlement funds; numerous iterations of expanded gaming; various forms of additional liquor privatization; and in the past 48 hours, removal of certain exclusions to the sales tax, such as: home cable and broadband services, bank profits, movie tickets and natural gas bills.
The most developed agreement appeared to be borrowing through securitization of the Tobacco Settlement Fund, and major casino gaming expansion (auctioning of satellite casinos to existing licensees in undeveloped areas, i.e., State College, York). Still, disagreement (both between legislative leaders and between the legislature and the Governor) on a number of smaller, though needed, funding proposals has slowed progress. This, coupled with last week’s announcement by Standard & Poor’s Global Ratings division of a likely downgrade of the Commonwealth’s credit rating (due to heavy reliance on one-time funding solutions) has further dampened the mood. And so, the cobbling together of a hoped-for budgetary bridge has instead evolved into a cobbled together budgetary cul-de-sac.
While the Governor and Senate Republican leaders have striven to maintain a positive posture that a spending package can still be agreed to this week, House Republican leaders have indicated there may be a need to pause current negotiations and instead pass a number of code bills to implement portions of the spending package. As of Tuesday, July 11th, both legislative chambers are on a 6-hour call back to session; which means that the folks have gone home until such time there is a “deal” on a revenue package.
In lieu of a spending package agreement, House Majority Leader Dave Reed has said that passage of the state’s non-preferred appropriation bills (those for Pennsylvania’s state-related universities) totaling over $600 million, will be on hold so that the 2017-18 FY budget imbalances are eased, albeit temporarily. Even with this maneuver, there will again be questions of constitutionality in passing a spending plan without a correlating revenue package to pay for it – although unlike last year when a revenue package passed within three days, legal challenges will now have ample time to materialize if there remains no resolution past Labor Day.
All of this will certainly force the Wolf Administration to implement spending freezes, the full ramifications of which cannot be fully known. It will likely include general freezes to all state agencies and especially in non-regulatory agencies such as the Department of Community and Economic Development.
Final Thoughts
So… there you have it. Once again, Pennsylvania faces the deficit/budget solution abyss. With the non-preferred, state-related universities and possibly municipalities, school districts, and communities with pending economic projects now some of the furthest out on the limb.
Where do we go from here? It is my opinion that the Legislature and the Governor will come to an agreement on a revenue package that, in theory, funds the programs they (the Legislature) voted for and the Governor allowed to become law. The key to any agreed to revenue package is reoccurring revenue instead of one-time fixes that are not sustainable. Then they will vote to fund the state-related Universities (for transparency purposes – Pugliese Associates represents the University of Pittsburgh, one of the four state-related universities).
The real question is how long will this take? It is our collective hope that a revenue deal will be made sooner rather than later for two obvious reasons:
- Parents and students from a state related perspective need to know what their tuition will be.
- With every day that passes (from a revenue package perspective) money is lost and not going into the General Fund.
It is probably obvious to you that nothing comes easy in PA. This is somewhat maddening since the Commonwealth has had a structural deficit for the past 6 years. Let’s face it, no one, including yours truly, is excited about their taxes being raised. It is especially concerning for those legislators who vote for tax increases and have to face their constituents. But the fact of the matter is, over this long structural deficit timeframe, we continued to kick the can down the road and hoped that the economy would have improved. Unfortunately, the economy has not improved and our structural deficits have increased. The time has come for the Commonwealth to come to grips with the tough decisions that have to be made if Pennsylvania does not want to experience additional credit downgrades and become another Illinois or a New Jersey (for further transparency, I was born and raised in New Jersey so it does pain me to mention the Garden State!!!).
For more sober reading, check out the publication that rates the 50 states financial condition: https://www.mercatus.org/statefiscalrankings
Rocco Pugliese
For more information and opinions on this topic here are some additional links and resources:
http://www.pennlive.com/politics/index.ssf/2017/07/budget_revenue_projections_17.html
http://www.pahouse.com/Files/Documents/Appropriations/series/2968/AdminCode_Summary_071117.pdf