As 10 p.m. approached Wednesday, the Pennsylvania House finally passed a revenue package to fund a $32 billion budget it agreed to earlier this summer.
The vote came after hours of debate, which involved most Republicans who spoke praising the plan and all Democrats opposing it.
Despite much needed movement by the House, the path forward is not clear. The state Senate passed its own plan to plug the $2.2 billion budget gap in late July, and it remains to be seen how lawmakers will reconcile the two packages.
Below, we try to make sense of how we got here and what happens next.
OK, what is happening?
Pennsylvania is supposed to pass a budget by July 1, when the new fiscal year begins. Sometimes the state meets that deadline. Sometimes it really misses it, like during the 2015-16 budget season, when the impasse ended in March 2016 (almost nine months after it was due). Sometimes they almost make it, like during the 2016-17 budget season, when the legislature and governor were able to agree on a $1.3 billion revenue package by July 13.
This year, both chambers of the legislature were able to agree on a $32 billion spending package, which Gov. Tom Wolf allowed to become law without his signature in early July.
Then the budget train went off the tracks.
What are we waiting for?
The seemingly impossible: compromise.
Lawmakers have been trying to agree on a revenue package for months, and House Speaker Mike Turzai in July pushed a revenue package that “relies on borrowing and siphoning money from funds that subsidize everything from mass transit to 911 call centers,” the Pittsburgh Post-Gazette reported. Other Republicans weren’t on board, so the state Senate went ahead and passed a revenue plan that levies a severance tax on natural gas extraction and raises taxes on utilities.
The Senate bill passed with support from Republicans and Democrats — and with the backing of Wolf — but the plan was immediately met with opposition by House Republicans who oppose tax increases of any kind.
Wait, take a step back — Turzai’s old plan sounds really familiar.
It should, because it’s basically what a group of conservative Republican House members proposed in early September as an alternative to the Senate plan. The so-called Taxpayers’ Budget would avoid raising taxes by taking millions of dollars out of special funds for transportation, farmland conservation and the environment.
No new taxes sounds really nice! What’s the problem?
Depends on who you ask.
If you go to the conservative Commonwealth Foundation, they’ll tell you these funds constitute a “shadow budget” and that taking money from them won’t harm operations. As Director of Policy Analysis Elizabeth Stelle wrote in a policy memo:
Funds in these reserve accounts have been sitting for years, even growing in some cases apart from annual spending. The transfers proposed in the latest proposal were vetted by legal experts to ensure operations would not be affected. Thus far, no agency has been able produce documentation showing the timetable for projects will be negatively impacted. Furthermore, one-time project delays are far preferable to a long-term tax hike on Pennsylvania families.
The left-leaning Pennsylvania Budget and Policy Center, meanwhile, says that these aren’t surplus funds at all, but money put aside for other purposes. As that group’s director, Marc Stier, wrote recently:
The money saved in the special fund accounts is committed to the purposes for which the special funds were created. Raiding those funds means that the government will do less than planned in all the areas in which the special funds operate.
Stier explained PBPC’s opposition to the plan in more detail in a policy paper:
1. This is only a short-term fix. It might be possible to fund the state budget for one year by these maneuvers, but eventually the reserves run out.
2. Money accumulates in these funds for a reason. The money raided from these funds almost always must be repaid with interest. Thus, the state budget deficit will get deeper in future years.
3. Borrowing from these reserves can significantly undermine the ability of these special funds to carry out their purposes, because the fund balances play a critical role in ensuring that sufficient funds are available in emergencies or when bills come due.
4. Co-mingling the money from the state’s various special funds with the General Fund is a kind of fraud in that it takes money raised from bond issues approved by the voters or dedicated by the General Assembly for specific purposes.
5. In many cases these special funds are set up to ensure that some purposes of government are paid for not by the general public but the people who especially benefit from them. (This, by the way, is a principle often proposed by conservatives who seek to privatize government services or the funding for them.)
So what exactly did the House pass on Wednesday?
The plan pulls $630 million from special funds (what’s good, Taxpayers’ Budget) but does not create a tax on natural gas extraction in Pa., a sticking point for conservatives who say drillers are already burdened by an existing impact fee. It needed 102 votes to pass; Republicans got 103.
According to a fiscal note, the revenue plan pulls $100 million from two transportation funds, $70 million from a recycling fund and $50 million from the Keystone Recreation, Park and Conservation Fund.
“The rest of the money comes from selling a portion of the state Tobacco Settlement Fund, raiding general state funds that have lapsed, and gambling and liquor expansions,” WITF reported.
Taking out what’s referred to as a tobacco bond (which has been done in other states, with mixed results) is not a new idea. The Senate’s plan borrowed more than $1 billion against future payments the state expects to get from the Tobacco Settlement Fund, and the House plan adopts the same concept.
Democrats were not on board, as expected.
Moderate Republicans also opposed the plan.
Republican Gene DiGirolamo from Bucks County questioned why there wasn’t a severance tax in the plan and was concerned about the lack of recurring revenues. Philly Republican John Taylor said he could not support the plan because of the harm it could inflict on SEPTA and public transit.
“In my opinion, this is not extra money,” Taylor said. “This is money that’s scheduled to be used for roads and bridges used by mass transit.”
Of the 15 Republicans who voted against the House plan, 13 are from southeastern Pa. and constitute what we’ve decided to call the SEPTA caucus.
What happens next?
The House plan now heads back to the Senate, which is scheduled to reconvene on Monday.
What happens then is unclear, but based on previous statements from members of the Senate, the plan doesn’t do much to assuage concerns (even from Republicans) about the need for recurring revenues.
“We had hoped to get into a formal negotiation structure long before this, but … not a lot of folks have been interested in negotiating until we put a plan forth in a public fashion that we have 102 votes for,” House Majority Leader Dave Reed told reporters before the Wednesday vote. “It’s not the ideal way of moving forward … but it is what it is. Times are different.”
Is shit about to get real?
It is, according to Wolf and other state leaders.
On Friday, the General Fund balance will hit zero, meaning the state will not be able to make $860 million in scheduled payments, according to State Treasurer Joe Torsella and Auditor General Eugene DePasquale. One major concern is the effect that further budget delays will have on the state’s credit.
In a letter to lawmakers, Torsella and DePasquale wrote they are “disinclined to support additional lending to the General Fund.”
As Torsella wrote in a Tuesday press release, “My obligation as Treasurer is to make only prudent investments of the funds under our care, not to enable continued budgetary dysfunction and a chronically unbalanced budget by providing emergency overdraft protection to the General Fund. No Pennsylvania business or household running a severe deficit could expect to borrow money without having a plan in place to balance its budget, and few lenders would consider such a loan to be prudent.”
After Wednesday’s vote, Wolf’s spokesperson released a statement saying the governor “and bipartisan members of the House and Senate understand that recurring revenue is necessary to solve the structural deficit and avoid a credit downgrade. The House Republican proposal does neither.”
“After leaving bipartisan negotiations in July, House Republicans have demanded to go it alone,” the spokesperson continued. “Hopefully now, they can get serious about funding the spending they passed two months ago, solving the deficit and avoiding further consequences.”
What happens on Friday? We’ll know soon enough.