Update 10/12: On Wednesday afternoon, October 25th, the Senate Education and Appropriations Committees will be conducting a joint informational hearing on the lack of funding to the state-related universities along with the University of Pennsylvania School of Veterinary Medicine.
As you have read on our blog page over the past several months, the Pennsylvania state budget has taken a series of unexpected twists and turns, but none was as unexpected as what happened Wednesday, October 4th at 2 o’clock. The Governor held a press conference during which many assumed he would be announcing spending freezes and cuts. As many entered the room tapping staffers for information on what cuts to expect, it seemed as if a new plot twist was coming, and it did.
After placing a significant amount of blame on the House Republican leadership for failure to come up with a viable revenue compromise, the Governor announced that instead of borrowing $1.25 billion to close the unfunded gap in the budget from the Tobacco Settlement Fund – a plan previously put forward by legislative Republicans and agreed to by the Senate and House Dems AND the Governor – he, the Governor, would now be monetizing future revenue from the Liquor Control Board (LCB).
According to Governor Wolf, the new deal has already been agreed to by the LCB Chairman. While some may still be questioning the legality of this move, the Governor has stated that he plans to unilaterally authorize it and move forward through the process over the next months. Because the Governor will be pledging the full faith and credit of the LCB and not the Commonwealth, there is a belief that he does not need approval of the Legislature; however, the cost of the bond will be more expensive.
The money would be amortized over a 20-year period and would cost $85 million per year in repayments. The LCB has confirmed that while their Board in its entirety still needs to review everything, they are definitely in conversation and working with the Governor’s office.
The reasoning behind the Governor’s decision may not be immediately apparent for many, but here’s why we believe he may have moved forward with this approach, and what it means for those of you with a stake in the budget process:
The Governor has expressed frustration with the budget process this year and has placed much blame on the House Republican Leadership, specifically the Speaker of the House, Mike Turzai. If you are acquainted with the Speaker’s long-standing, top-priority issue, you would know that he has been campaigning and raising money on the issue of liquor privatization in Pennsylvania over the past several legislative sessions, but has yet to get language passed that fully implements the reform.
By borrowing money from the LCB instead of the Tobacco Settlement Fund, the Governor is creating a contract wherein the state is indebted to the LCB over a 20-year period. With a standing contract in place, the Governor will essentially be placing a 20-year moratorium on the possibility of liquor privatization, killing the Speaker’s priority issue – thus, the Governor gets a “two-for,” funding from the LCB and a loud and unmistakable shot over the Turzai bow.
In the end, the budget is balanced, but not without a few casualties along the way. Several issues still remain unresolved and will be delayed at least another few weeks. State-related universities have yet to be funded, and in passing legislation to fund those schools to the collective tune of $600 million, more revenue will be required, so some sort of revenue package is still in the mix. If the state-relateds go unfunded, the students and parents will see substantial increases in second semester tuition and subsequent tuition increases for next academic year since the dollars in the non-preferred funding subsidizes tuition for in-state students to the tune of over $11k per student. (Pugliese represents the University of Pittsburgh – one of the state-relateds.)
The fiscal code which directs how the Governor is to spend money is still not completed, so any provisions in that code bill that have been advocated for by a multitude of interests still hang in the balance. The good news, however, is that if you are a vendor and have a contract with the state and/or are a recipient of state services, the money will most likely be there to pay vendors and the state will be able to continue its daily business.
Stay tuned as both chambers will be back in session on October 16th in the hope that some of these unresolved issues will reach a successful resolution.
Katie Dotto/Rocco Pugliese
Here are some additional resources on the updates we discuss above: