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The pandemic of 2020 has thrown the entire budgeting for the Commonwealth of Pennsylvania into turmoil. This instability will have significant impact on our local area well beyond the $12.8 million dispute with the governor on the CARES Act funding that has somewhat been resolved.
Since there was such a massive difference in budgeting processes this year versus all prior budgets, we thought it useful to try to bring the budget issues into focus.
First, in late May 2020, the legislature passed, and the governor signed, an interim budget which reflected funding schools for 12 months and the remainder of the budget for approximately five months. This was done due to the inability to predict the economic impact of the COVID 19 response on tax revenues.
This partial budget represented spending of approximately $25.8 billion in general revenues compared to a budget request of $35 billion. This means that approximately $10 billion in unfunded budget requests must be dealt with to complete the budget with only $5 billion in expected revenue when we return in the fall.
Many people have asked about the federal stimulus monies under the CARES Act which was approximately $5 billion. About $2.6 billion in federal stimulus money provided for under the CARES Act was allocated as part of the budget. Additional allocations of $625 Million were distributed to the counties which included the $12.8 million in dispute with Lebanon County.
So here is the bottom line. We have $10 billion of spending requests with an expected revenue of approximately $5 billion. In addition, we still have $1 billion remaining to allocate under the CARES Act.
Some extremely difficult budget decisions will have to be made.
For instance, we already know that the hospitals in our area to include WellSpan, Hershey Medical Center, Penn Medicine have all been negatively impacted financially because of the elimination of elective procedures. Part of the additional $1 Billion in CARES Act distributions above will go to health care facilities in our area to restore much needed medical capability.
Also, all of our senior care facilities have been negatively impacted with the requirement for personal protection equipment, additional staffing costs, health related costs and mitigation expenses, as well as limited to no ability to bring in new residents during the crisis. Additional funding to help defray the costs at Londonderry Village, Kadima, Traditions of Hershey and other senior care facilities are top priorities in the budget process.
The budget shortfall from last fiscal year of $3 billion as well as the expected $5 billion shortfall this coming fiscal year, implies that cost efficiencies must be achieved to provide for essential services while living within our revenues.
Some have asked about the probability of taxes being increased. As you may already know, I strongly believe that the Commonwealth receives sufficient revenues and that we must rely on improve spending efficiencies to reduce the cost of government.
For instance, HB 985 (Auditor General Fraud and Forensic Act is currently in the Senate); HB 1053 (Lean Government Operations); HB 52 to 58 (Government reorganization); and our pension cost reform bills are all designed to reduce the cost of government while maintaining benefits and without increasing taxes.
The reforms are so critical to ensure that our seniors are protected, that fiscal stability is maintained, that our local business reopen safely and people be permitted to go back to work safely. Failure to move rapidly may have significant long term implications for our area and the Commonwealth of PA.
On the local level and school district level what has been impacting budgets more than any others have been rapidly expanding costs for COVID-19 mitigation, school pensions, special education needs unfunded by the federal government, significantly higher Medicaid expenses than expected impacting senior centers, and storm water management costs such as with MS-4 stormwater costs.
For instance, while we have significantly expanded the amount of money that the state puts into the teacher pension funds, the school districts must also match it. The estimated $45 billion shortfall in teacher pension funds at the state level causes higher contribution rates of as much as 34.51% of payroll for the school district this year and estimated to be almost 35% next year.
As a result of the tough decisions having to be made locally, many of us in the legislature are asking that pension management reform on management fees be implemented to help pay down part of that pension obligation.
In addition, the basic education funding formula puts Lebanon School District specifically in an underfunded position of $9.1 million because the funding formula does not reflect the growth in our area schools due to increasing population. (See chart) This puts additional pressure on the school district and the community to come up with the shortfall. This is part of the fix that my property tax bill would address assuming we can find the replacement revenues that are acceptable to all parties.
Despite all the problems, we remain committed that there will be no tax increases out of Harrisburg this year for the final part of the budget. The decisions will be tough, the choices real, and the urgency of acting the primary focus for the remaining budget.
We will keep you posted on developments as they occur.
Frank Ryan, CPA, Col USMCR (Ret) represents the 101st District in the PA House of Representatives. He is a retired Marine Reserve Colonel, a CPA and specializes in corporate restructuring. He serves as Vice Chair of the PSERS Pension Board and its Chair of the Audit/Compliance Committee. He can be reached at email@example.com.