Pa. has to pass a budget soon. Here’s what is on the table

Budget debates in Pennsylvania’s state Capitol are fast-moving affairs in the best of years, with legislative leaders talking behind closed doors with little input from the public.

This year, however, brings some historic variables: a pandemic, a major election, and volatile unemployment.

Pennsylvania’s General Assembly has to pass a new budget by Nov. 30. That’s when the current budget expires, and when the current legislative session ends.

But in order to approve new spending and revenue plans, lawmakers must confront a projected $5 billion tax revenue shortfall that’s expected to endure through 2021 — the result of job losses and slow economic activity during the pandemic-induced recession. 

Lawmakers typically pass a 12 month budget in June before sending it to the governor for his signature. But this year, Gov. Tom Wolf and the Republican-controlled General Assembly  agreed to a $28.5 billion, five-month interim budget as the state emerged from the first wave of the COVID-19 pandemic. 

They hoped that deferring tough decisions until November would give the state time to focus on its COVID-19 response and recover from a tsunami of job losses. The state’s unemployment rate spiked to a record-high 16 percent in June, declining over the summer to hit 8 percent in September.

But their decision also means that negotiations on the new budget likely will continue in a lame duck session after the election, when potentially dozens of retired or defeated lawmakers will still have power to influence state policy — even though they may have faced voters for the last time. 

And if negotiations somehow drag past Nov. 30, the state could face layoffs and service cuts as its current spending plan expires and the 2019-2020 legislative session comes to a close. That will leave both chambers, which could flip from GOP-control to a Democratic majority on Nov. 3, scrambling to patch the budget.

While there are many options on the table, no single policy will likely solve the commonwealth’s financial straits. Below are some of the potential ways to get Pennsylvania back in the black.

Expand gambling

Senate Republican leaders faced scrutiny this spring when they fast-tracked legislation allowing bars and taverns to install video gambling terminals. 

Senate Majority Leader Jake Corman, R-Centre, offered the proposal as a partial fix to Pennsylvania’s mounting budget woes, saying a tax on the revenue generated by the machines would bring in $250 million annually. 

But that argument failed to win over some Republicans who have ideological opposition to gambling, as well as Democrats who said the proposal was shrouded in secrecy, and that they needed more time to consider its merits.

Senate GOP leaders said they might revisit the idea in the fall. And House and Senate committees have met separately this month to hear industry executives weigh in on a potential gambling expansion. In other words: don’t be surprised if the proposal reemerges as part of a budget compromise.

Legalize recreational marijuana

Gov. Tom Wolf has fired up his office’s PR machine this fall to call for recreational marijuana legalization. He’s touted the proposal in three separate media appearances since September, saying a regulated marijuana market would reap billions of dollars in new revenue for the state. 

State Auditor General Eugene DePasquale estimated in 2018 that legalized marijuana could generate $581 million in annual revenue for Pennsylvania. Lawmakers who have introduced legalization bills in the House and Senate say their proposals could rake in $600 million per year.  

But revenues from so-called “sin taxes” – those levied on tobacco, alcohol and gambling – are notoriously volatile and difficult to predict, making them a risky tool to balance state budgets, according to the Pew Charitable Trusts. 

Wolf also has been unable to overcome strong opposition from Republican lawmakers, who have been adamant that they won’t consider a legalization push this year. A spokeswoman for Corman said Friday that Wolf’s repeated appeals haven’t swayed them.

“[Wolf] can do as many press conferences as he wants,” the spokeswoman, Jenn Kocher, said. “Our position hasn’t changed.” 

Take on new debt

There have been occasional murmurs among rank-and-file lawmakers about using debt to temporarily fill parts of the budget.

Such a move is legally difficult in Pennsylvania, where the state constitution mandates that voters must approve new debt.

The constitution does allow exceptions to the debt referendum, specifically to “rehabilitate areas affected by man-made or natural disaster.” Whether that applies to a pandemic is unclear.

Lawmakers also could find ways to work around that requirement. If the state expands gambling, for example, those new revenues could be used to pay for new debt without having to be approved by voters.

The General Assembly resolved a budget impasse in 2017 by floating debt backed by revenues from a 1997 settlement with Big Tobacco companies.

Fiscal conservatives might also look askance at such a move, as it would just increase costs down the line.

Wait on the federal government

For months, Pennsylvania lawmakers held out hope that Congress would approve another stimulus package carrying billions of dollars of aid to state and local governments. 

“There is potentially going to be a significant amount of money coming from Washington,” Senate Appropriations Committee Chairman Pat Browne, R-Lehigh, told his colleagues earlier this month, a day before President Donald Trump reportedly called off stimulus negotiations in Washington. 

Since then, negotiations between Trump, the Democratic U.S. House and the Republican U.S. Senate have run hot and cold. And there’s no guarantee aid will come before the end of November. 

That’s why Capitol power brokers said they won’t let Congressional action — or inaction — dictate Harrisburg’s next move.

“We’re trying not to get caught up in the everyday twists and turns of Washington D.C.,” said Neal Lesher, spokesperson for House Appropriations Committee Chairman Stan Saylor, R-York.

Pennsylvania got $3.9 billion from the CARES Act stimulus this spring. But federal law prohibits states from using the aid to patch budget holes.

The state has already spent $2.6 billion of the CARES money to provide aid to nursing homes, schools and local governments. Lawmakers have held out some hope that Congress might change the terms to let them use the leftover $1.3 billion to fill in parts of the state’s deficit.

But Wolf and legislative Democrats have floated their own plans for spending the extra $1.3 billion, calling on aid to small businesses, low income renters, and front line workers among other programs.

Limit spending

Senate Republicans say they oppose tax increases. And the House GOP said there’s no appetite for hikes among their caucus, either. But there also appears to be little interest in steep budget cuts.

Instead, Lesher said, the chamber would look for smaller savings where it could, such as in the state’s Medicaid program.

That’s also a tactic the Wolf administration is taking, according to the Associated Press. The executive branch has curtailed new hires to try to save money as it calls for a flat-funded budget.

Under a flat-funded budget, every program in the state would receive the same amount of money it received last year. The General Assembly already agreed to flat-fund education spending as well as pension and debt payments through next June, the usual budget deadline.

But flat funding also means that programs dealing with a crush of new demands could be short of funds. It also means no new funding to meet rising personnel costs.

Republican and Democratic leaders have also said that state revenues are somewhat better than expected, providing another small reason for optimism.

In the meantime, negotiations will continue until a final budget emerges, most likely some time after Nov. 3 and before Nov. 30.