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HARRISBURG — Facing plummeting revenues, increased demand for public assistance, and a July 1 budget deadline, Gov. Tom Wolf and state lawmakers are trying to piece together how they can spend federal stimulus dollars and simultaneously manage a massive budget hole.
Despite the state’s Independent Fiscal Office projecting an up to $4 billion budget shortfall, Wolf is sticking by his original budget proposal that includes a 4% increase in spending over the current year and relies on relatively robust revenue growth.
Even before the coronavirus, Republicans expressed skepticism about the spending.
During his first year in office, Wolf and the GOP-controlled legislature found themselves in a protracted, and at times nasty, battle over the budget. While they’ve managed to compromise in recent years, the fallout from the coronavirus could set the stage for a contentious fight ahead.
“At this point, we plan to try to work in a bipartisan manner and get a practical solution in place, trying not to make this a political agenda,” said John O’Brien, the senior policy adviser for the House Appropriations Committee. “We’re hopeful that all parties are going to join us in that view.”
As part of the federal stimulus package, which can only be used to cover COVID-19 expenses, Pennsylvania has already received at least $2.9 billion of an expected $4.9 billion in relief, with more than $1 billion allocated to the state’s counties with 500,000 residents or more.
That is all within Wolf’s power to allocate, though he’s promised to work with lawmakers, according to his spokesperson, Lyndsay Kensinger, and Senate Minority Leader Jay Costa (D., Allegheny). Costa said Democrats would unveil a spending proposal Wednesday.
How the money gets used will have a direct impact on the 2020-21 budget. The federal CARES Act stipulates that the money can be used on “necessary expenditures incurred due to the public health emergency” that “were not accounted for in the budget most recently approved.”
State lawmakers are trying to figure out how far they can stretch that definition.
O’Brien said the legislature has sought clarity and possible changes to how the dollars can be used from the Republican congressional delegation.
The most recent guidance issued by the U.S. Treasury Department said the stimulus money cannot be used as a “revenue replacement.” Instead, it lists several examples of how the funds could be used, such as for costs associated with establishing temporary testing sites, acquiring personal protective equipment, and facilitating distance learning.
House Republicans want to get the full picture of how the state can use the dollars before ranking spending priorities, because “the budget all over is hurting,” O’Brien said.
“You can certainly make a strong argument that the slower tax collections that do support the various sections of our population have been impacted by COVID-19,” he said, noting Pennsylvania’s decision to push back its tax deadline to July 15 to match the federal extension.
The looming question is whether Congress will take a pass at yet another relief package that includes unrestricted aid to states. U.S. Sen. Mitch McConnell (R., KY) recently said he’s in favor of allowing states to declare bankruptcy, prompting sharp rebukes from Democrats, though more recent comments indicate he’s open to a deal.
President Donald Trump on Tuesday suggested this aid may be tied to willingness to adopt hardline immigration policies.
As federal officials contemplate their next moves, state lawmakers may try to pass a temporary budget, giving them more time to figure out how the state can use existing stimulus dollars and get a better idea of what revenue will look like after the new tax deadline.
House Majority Leader Bryan Cutler (R., Lancaster) said Republican leadership has asked the chamber’s Appropriations Committee to prepare “various options,” including a short-term budget that would be passed before July 1, as required by the state Constitution.
“It’s going to be very difficult to forecast revenues,” Cutler added.
Several other top General Assembly members said a short-term budget is a strong possibility, but no decision had been made as of Tuesday. The Wolf administration is not considering a temporary budget at this time, a spokesperson said.
States across the country are grappling with how they will balance their budgets by the start of their next fiscal year, which begins on July 1 for many. New Jersey already pushed its fiscal year deadline to September 30, while other governors have tasked their administrations with slashing spending in the final months of the current fiscal year.
Pennsylvania has already stopped paying more than 10% of its workforce — approximately 9,000 state employees — who were forced to use sick or personal leave time if they wanted to continue receiving a paycheck.
For his part, Wolf has said he won’t abandon his $36.1 billion spending plan for the next fiscal year, and a spokesperson said he does not plan to introduce a modified budget proposal.
Wolf told reporters earlier this month that he still wants to direct $204 million from a controversial special fund for the horseracing industry to create a scholarship program for low- and middle-income students at Pennsylvania’s 14 state-owned universities, as well as pursue the other policy proposals he introduced in his February budget address.
O’Brien, the appropriations adviser, said “no one can look you in the eye” and say that Wolf’s initial budget proposal is possible given the state’s reeling economy.
“We’re not sitting, taking shots on the governor," O’Brien said. “We are in a very different reality today than we were in the beginning of February.”
Costa, the Democratic Senate leader, said his caucus continues to pursue a minimum wage increase as a priority going into budget negotiations. Some of Wolf’s policy proposals, like borrowing $1 billion for a lead and asbestos remediation program for Pennsylvania’s schools, are still critical because of their health impacts on students, he added.
Rep. Matt Bradford, a Montgomery County lawmaker who serves as the top Democrat on the House Appropriations Committee, said Wolf’s budget represents his caucus’ priorities “but clearly has to reflect new realities given the unforeseen decrease in revenues due to the pandemic.”
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