CapitolBldg

Legislature expected to pass budget Wednesday 6-20-18 without increasing taxes

By Chris Comisac, Capitolwire

Despite the positive attitude permeating much of the Capitol about the state budget, there are plenty of one-time sources of revenue being used to balance the budget, with hundreds of millions in spending paid for non-General Fund revenues making the budget’s total spend figure appear lower.

HARRISBURG (June 19) – What a difference an election year and an improving economy can make in Pennsylvania’s annual budget process.

For the past three years, the state House of Representatives and Senate, Legislative Republicans and Democrats, and Gov. Tom Wolf, have struggled mightily to pull together a balanced state spending plan.

Some years – like the 2015-16 budget’s nine-month impasse – have been more difficult than others … but not this year.

Projecting tax revenue growth for the coming year that’s at least 4 percent greater than the current year, legislative leaders – all of them – and Wolf have agreed to a state budget that will spend approximately $32.7 billion during Fiscal Year 2018-19.

According to House Appropriations Committee Majority Chairman Stan Saylor, R-York, that’s roughly $560 million more than the current year’s final spend total, with that 1.7-percent rate of growth falling within the rate of inflation, which, Saylor said is 2.13 percent. However, hundreds of millions of dollars of spending normally found in the General Appropriations (GA) bill (most of it in the Department of Human Services’ budget lines) is being paid for by non-General Fund dollars, which makes the total spend figure for the budget appear to be far lower.

Saylor’s committee, without any debate – but a few comments by the committee’s two chairmen – voted unanimously for the GA bill, House Bill 2121 Tuesday. The bill is expected to get a final floor vote in that chamber on Wednesday.

In addition to the GA bill on Tuesday, the House Appropriations Committee reported out all of the preferred and non-preferred appropriations bills that accompany the state budget. Those bills could also get final votes by the House on Wednesday.

WHAT’S IN THE BILL?

According to legislative leaders, the spending plan has a little bit of everything, including additional money for both basic and higher education, new funding for school safety, additional dollars to help those with intellectual disabilities, funds to continue addressing the state’s opioid problem and even a bit left over to start rebuilding the state’s Rainy Day Fund.

With regard to education spending, Saylor told the Appropriations Committee the budget contains and additional $100 million for basic education, $20 million more for pre-K Counts, $5 million more for Head Start, $15 million more for special education, $25 million more for the Educational Improvement Tax Credit Program (EITC) and a $30 million increase for the career and technical education appropriation in the Department of Education.

Another $70 million has been earmarked for school safety ($10 million of which will be allocated to an existing safe schools initiative), a declared priority for lawmakers since mass school shootings earlier this year in Florida and Texas.

Sixty million of those dollars will come from the money that has become available from the reversal of former Gov. Tom Corbett’s FY2014-15 veto of legislative spending. The House and Senate will each contribute $15 million, with another $15 million coming from the Wolf administration and $15 million from the state’s Judiciary.

The details of how this money will be spent remain to be spelled out in an accompanying school code bill, Said House Majority Leader Dave Reed, R-Indiana.

Reed views the setup as being similar to a new type of accountability block grant program under the education department. Schools would apply for state aid from a menu of specified options.

“For some schools it may be metal detectors, for some schools it may be resource officers, you know, it may be hardening the entrance way, that sort of thing, but we want to give schools some flexibility,” he said.

Asked if this would be a one-time revenue source rather than recurring revenue, Reed said the fund will be established with money from the legislative, executive and judicial branches and it will be up to future legislatures to provide more money.

He anticipates that every school district that applies for safe school funding would receive some money from the new pot.

Higher education will also see a funding increase, as the State System of Higher Education gets a 3.3-percent hike, while three-percent increases are coming for Pennsylvania’s state-related universities (Penn State University, the University of Pittsburgh, Temple University, Lincoln University, the University of Pennsylvania’s School of Veterinary Medicine), the state’s community colleges and Thaddeus Stevens College of Technology.

Additionally, 965 more individuals with intellectual disabilities will come off of the state’s waiting lists for services, and 5,230 more senior citizens and those with physical disabilities will be able to get home- and community-based services. Another 1,600 children will also be able to get child care services thanks to additional funding.

With regard to opioids, 800 more families affected by opioids will be able to access evidence-based home visit services.

And 50 percent of the budget’s remaining surplus – which is projected to be $149 million, so half of that is $74.5 million – will go into the Rainy Day Fund, the first time money has been put into the fund since FY2006-07 budget (prior to the Great Recession). The contribution had been 25 percent of the available surplus, but budget negotiators agreed to increase the contribution to 50 percent.

REACTION TO THE BUDGET BILL

“This is a fiscally responsible budget that provides for the needs of the citizens of Pennsylvania without increasing taxes,” said Saylor.

House Appropriations Committee Minority Chairman Joe Markosek, D-Allegheny, echoed Saylor, commending the additional funding for many important items in this, his last budget, as he’s leaving the House at the end of his current term.

“If you want to find good things in it, you can; if you want to find things that aren’t so good, you can do that to,” said Markosek of the FY2018-19 budget. “This one – there are a lot of good things in it.”

Reed said it’s an accomplishment to have agreement on a budget that spends below the rate of inflation and boosts spending for education and puts money in the Rainy Day Fund for the first time in a decade.

“I think this puts us on a solid path to financial stability in the state,” he added.

“We are in full support of the General Appropriations bill that was moved out of the House Appropriations Committee today,” said Senate Majority Leader Jake Corman, R-Centre, later on Tuesday.

Senate Republican leaders indicated their intent to get the budget bill passed by the end of the week. If the House approves the bill on Wednesday, as is expected, the Senate could refer the bill to the Senate Appropriations Committee and report it out later on Wednesday. Thursday would be a second day of consideration for the bill and the Senate could put up a final vote for the GA bill on Friday.

As for the code bills that will likely accompany the GA bill – a Fiscal Code, an Education Code and a Human Services Code – Senate leaders from both parties indicated there’s still a bit more work to be done to finalize them, which could require the General Assembly to finish up the budget process next week, although the indication was every attempt would be made to get them done this week.

“We’re excited about the budget – we think it’s fiscally responsible; it’s just a small increase in the spend; it meets a lot of priorities in the areas of education spending – which are important – school safety spending – which is important – so we’re proud to support it, and looking forward to getting it completed as well as, hopefully, some of the other budget related items – the code bills – by this Friday,” said Corman.

Following a late afternoon Senate Appropriations Committee meeting, Senate Minority Leader Jay Costa, D-Allegheny, reacted to the budget: “We’re very pleased, starting with continuing to make our annual investment in education, from pre-K all the way up to higher ed – the governor had not proposed an increase for higher ed, but a number of us fought for that, we thought it was appropriate. The early learning is not a high as we would like it to be – we’d like it to be up around $40 [million] – but $25 million again this year – a consistent increase year after year – is important. And with the career and technical education, the $30 million there, this has really been an education budget, and I think that’s important.”

Senate Appropriations Committee Minority Chairman Vince Hughes, D-Philadelphia, added, “We did some positive things here,” noting the increased funding for basic, higher and career education, “… but there’s still some glaring holes in it.”

“We’ve got to figure out, after we get through this process – I think it’s also a good sign that it’s finished early … I shouldn’t speak too fast [he then knocked on the wall’s wood panel] – there was a lot more cooperation, a lot more willingness to dialogue – and that’s all good … I think it’s the foundation going forward for creating policy and a budget program that really gets at the anxiety for lots of people in Pennsylvania,” said Hughes, who said more needs to be done about educational and wealth inequities.

And for the man who has yet to sign a state budget during his time in office, this one sounds like it will get his signature despite it being roughly $300 million short of what he proposed spending in February.

“We have worked cooperatively over the past few months to find common ground and room for compromise,” said Wolf in a statement Tuesday. “This budget makes smart investments in education, safety and human services and continues the progress we’ve made to restore fiscal stability to the commonwealth’s finances.”

BALANCING THE BUDGET – THERE’S STILL PLENTY OF ONE-TIME FUNDING

On Monday, the Independent Fiscal Office issued its final official revenue estimate for both FY2017-18 and FY2018-19. The IFO’s estimate for FY2017-18 is $135 million less than the one used by the state budget and only $32 million less than the projected revenues upon which the FY2018-19 budget is built.

While much of the budget is funded with recurring tax revenue, it would appear that nearly $1 billion, maybe more, is one-time funding that won’t be available when the FY2019-20 budget is developed.

Of that, $200 million would again come from a transfer from the Pennsylvania Professional Liability Joint Underwriting Association (JUA), which provides liability insurance to physicians.

Even though the transfer was blocked by a federal judge in May, legislative leaders said they believe they have the ability to transfer the funding, as reported by Capitolwire on Monday.

This time around, if the transfer effort should come up short – as it has during the past few years – a supplemental request or budgetary adjustments will be necessary to account for the $200 million shortfall.

There are a few other one-time funding mechanisms that have been employed to balance the state budget, according to information supplied by the House Democratic Caucus’ Appropriations Committee.

Included in those budget-balancing devices are a decision to pay for the state’s PlanCon authority rentals and sinking fund requirements by incurring more debt, freeing up roughly $130 million; a cash-flow savings of $120 million in savings from a change in the timing of monthly payments to a subset of managed care organizations (MCOs); $66 million in additional federal funding to be used in place of state funding for child care services; funds in excess of initial estimates from an agreement made between the attorney general and tobacco manufacturers to settle disputed Tobacco Master Settlement Agreement payments that were withheld from Pennsylvania starting in 2004 (initial estimates already built in the budget are roughly $275 million, with Senate Republicans suggesting the excess could be in the area of $40 million); a reduction of Pennsylvania State Police cadet classes, from four to three, during the upcoming year; and a delay by some non-law enforcement agencies in purchasing P25 radio (saving some additional funds in government operations).

Also to be reconciled next year is a $351 million one-time windfall due to Pennsylvania’s switch from a Gross Receipts Tax upon Medicaid MCOs to an assessment. The GRT was a prospective payment that had to be reconciled at a later date; that’s not the case now with the assessment, and the $351 million was revenue received by the department after the GRT ended. It’s also $351 million that will be spent in FY2018-19 by the DHS but which won’t be available going forward.

Additionally, when the FY2019-20 budget is crafted, it will have to start including the annual repayment of the $1.5 billion debt incurred this past year to pay for the FY2016-17 budget shortfall. The state will need another $115 million to cover that annual payment.

When asked about the one-time funding included in this budget, Senate Appropriations Committee Majority Chairman Pat Browne, R-Lehigh, said: “In any $32 billion operation, there’s gonna be those components, since the vast majority of it is recurring revenue. Our projections for next year show that if we stay within current spending trends, even if we go a little higher than current spending trends, there won’t be a need for a conversation about revenue next year, even with some of the one-time revenues that are in here.”

“At our spending that we’re proposing, which is below the so-called TABOR (Taxpayer Bill of Rights) fiscal sustainability measures, we’re balancing at our current revenue capacity, and we’ll be able to do that in the subsequent year with spending at the same trends,” added Browne.

Costa wasn’t as confident about state revenues performing well enough to cover all the one-time components of the state budget, but he said they’ll “be able to cover most of that.”

PA HOSPITALS STILL SAY THEY’RE GETTING THE SHORT END OF THE STICK

Although plenty in the state Capitol were expressing happiness with the outcome of the budget process, Pennsylvania hospitals restated the concerns they initially offered when they objected to the 60-percent tax hike included in Wolf’s budget proposed in February.

Within the agreed-to budget, instead of a $130million increase of the Quality Care Assessment charged to hospitals, the increase now appears as though it will be $75 million … which still isn’t acceptable to the hospital community that already pays $220 million.

Said Hospital and Healthsystem Association of Pennsylvania president and CEO Andy Carter: “The hospital and health system community drove the creation of the Quality Care Assessment during the 2010 budget. The program is designed to leverage federal Medicaid funding for hospital payments and provide support for the state’s general fund. Since fiscal year 2011, hospitals and health systems have contributed more than $1 billion to address budget shortfalls, and this budget will mark the fourth time that hospitals have committed to help stabilize the state’s finances by providing new and flexible tax revenue.

“The hospital community understands the need for additional resources, but a $75 million increase in the amount of money going to the general fund is still unsustainable.

“As state policymakers continue their work, they need to understand what is at risk if such a jump remains in this budget plan. With a third of Pennsylvania hospitals operating with razor-thin margins, access to primary care and specialty services may be at risk, as hospital leaders may be forced to make difficult decisions about their futures.

“We cannot let the needs of the general fund rob the hospital community’s potential to invest in health care.”