Nearly two months after the state’s budget deadline, lawmakers still haven’t reached a consensus on how to pay for the spending plan they authorized in June.
Gov. Tom Wolf warned lawmakers this week that continued inaction will mean that, by mid-September, the state won’t have cash on hand to meet some of its obligations.
But, for now, K-12 public schools are still on solid footing, in large part because Wolf authorized a loan from the state’s motor license fund to the general fund, which allowed the first batch of school dollars to flow as expected.
That disbursement will only last, though, until the end of October, and if budget talks are still ongoing, that’s where things could begin to get difficult.
“The sudden, potential doom and gloom of not being assured of anything is slowly setting in,” said Jay Himes, the executive director of the Pennsylvania Association of School Business Officials. For him, this year’s squabble is starting to look too much like the historically prolonged budget fight of 2015, Wolf’s first year in office.
“There’s some degree of, ‘Oh my, here we go again,'” he said.
During that impasse, districts didn’t receive any state funding through the first half of the school year, and many were forced to take out loans, dip into reserves and/or find things to cut to make it through.
Similar to then, if this impasse drags on, districts that are well endowed by local property taxes and have amassed a large rainy day fund would feel the least pressure. But poorer districts reliant in large part on the state for support would be most at risk.
That’s frustrating to Gary Buchsen, the superintendent of Port Allegany School District, a poor, rural district in North Central Pennsylvania that receives about three-quarters of its funding from the state.
“To wait this long into the summer is kind of perplexing,” said Buchsen, sounding flummoxed. “I know schools can’t operate like that.”
During the 2015 impasse, Port Allegany authorized borrowing from its capital reserves to cover expenses. Nearby districts didn’t have that luxury.
“I know several districts that had to go to banks and take out loans. We were fortunate that we didn’t have to,” he said.
For instance, the School District of Philadelphia borrowed $600 million in 2015 to get through the impasse, and then lost more than $2.5 million on interest payments to pay back the loans.
In Reading, too, another district reliant on the state for about three-quarters of its funding, the memory of 2015 still lingers.
“The Reading School District has made strides to improve its financial position to provide educational resources to the students and staff. The district was held hostage by the 2015-2016 budget impasse and cannot afford to have these efforts and accomplishments jeopardized by Harrisburg’s inability to come to a consensus,” said Wayne Gehris, Chief Financial Officer of the Reading School District, in a statement.
To tax or not to tax
The loggerheads in the capitol stems from a debate between the Senate and the House of Representatives over how to pay for the spending plan they agreed to in June.
Then, staring at a $1.6 billion deficit created by a revenue shortfall, lawmakers agreed on a budget that boosts spending for things like public education without consensus on how to pay the tab, leaving a $2.2 billion dollar hole.
In late July, the Senate passed a plan to remedy this, in part, by raising home energy taxes. The Governor says he’s willing to sign off on this deal.
“The Governor continues to urge the House to follow the Senate’s lead and fund the budget that passed with overwhelmingly bipartisan majorities,” said Wolf spokesman J.J. Abbott.
Leaders in the House, though, want to avoid tax hikes, and seek to balance the budget by cobbling together some one-time infusions of cash by raiding other state funds.
“What’s the final resolution going to look like? I don’t think anybody knows yet,” said Steve Miskin, spokesman for House Republicans. “As we’ve told them for years, the tax on the utilities does not have support in our chamber.”
The split between the House and Senate, both controlled by large Republican majorities, highlights a notable difference between the chambers.
In July, talking about the need to create new recurring revenue, Senate Majority Leader Jake Corman said: “at some point you have to face your fiscal responsibility.”
House leadership seems baffled at the direction taken by their Senate counterparts.
“The one message our members are getting very clearly from our constituents is, ‘Don’t raise our taxes’….so I don’t have a clue what their thinking was,” said Miskin.
House leaders also blame the predicament on Wolf, who they say should have acted midyear when it became clear that revenues weren’t going to meet expectations.
Despite the squabble, there is a crucial difference between now and 2015 that puts schools in a sunnier position: the spending plan has already been made law. So this means that even if the budget remains out of whack, as revenues come in, the Governor has the authority to release them to schools and other priorities as already agreed.
However, without further action, at some point the ends won’t meet.
September 15th looms as the first date the Treasury says it won’t have enough cash on hand to make payroll for state workers and meet medicaid obligations. Often when this sort of cash-flow issue happens, the Treasury authorizes a short-term loan, but Treasurer Joe Torsella says it’s unwise to do so without a plan for a balanced budget, thus setting the stage for continued uncertainty.
“If you’re anybody who is expecting a payment at any point in the future, you’ve got to be incredibly concerned that there’s a fundamental mismatch between the revenues that the commonwealth is currently taking in and the expenditures that the General Assembly passed into law,” said Michael Connolly, spokesman for the Pennsylvania Treasury.
But as far as schools go, House leaders doubt Wolf will let them feel the pinch as he gears up for his 2018 re-election campaign.
“He’s going to make sure that the schools are funded,” said Miskin. “He’s not going to want that hanging over him.”
School advocates aren’t speaking with as much confidence. “It’s just not a good position to be in when you don’t know what a major revenue source is going to be or when it’s going to get paid,” said PASBO’s Himes.
Members of the House of Representatives are expected to return to the capitol on September 11.