With Pennsylvania's budget stalemate in its seventh week, health and human services organizations want Gov. Tom Wolf and the legislature to provide some form of stopgap spending plan.

"Many of the most vulnerable residents in the commonwealth depend on services that rely on state funding," United Way of Pennsylvania president Kristen Rotz said in a statement. "With every passing week that this budget delay continues, more and more of them will lose access to these services."

United Way and seven other nonprofits suggested a handful of options.

The commonwealth, for example, could authorize continuing appropriations at last year's levels until the commonwealth passes a new budget; it could also assure that all federal pass-through funds continue to flow; or expand the list of essential services that continue to receive incremental funding during the impasse.

About half of respondents the United Way surveyed said expected flow problems by now, another 25% in September. As of mid-August, 23% of human services agencies responding have already exhausted contingency funds, the survey found.

By September, said the United Way, half the agencies' contingency funds will dry up; 60% planned to access lines of credit this month to continue services, while 110 of those accessing credit lines projected that they will spend at least $1.4 million on interest costs through Oct. 31. The state cannot reimburse those costs.

Wolf, a Democrat, and the Republican-dominated legislature are at odds over how to fund the $30 billion fiscal 2016 budget, which Wolf vetoed. Infrequent talks have produced nothing. The sides are expected to resume discussions Wednesday.

The governor wants to raise the income and sales taxes and impose a severance tax on Marcellus Shale natural gas drilling. The Republican-crafted budget raised no taxes.

Pennsylvania still operates under bond-rating glare, largely due to its estimated $53 billion unfunded pension liability. All three credit agencies last year downgraded the commonwealth. Fitch Ratings and Standard & Poor's rate Pennsylvania's general obligation bonds AA-minus. Moody's Investors Service rates them Aa3.

An overhaul of the pension system for state employees, though not part of the budget bill, is nonetheless entwined in the political drama. Wolf vetoed a bill that would have moved new state employees from a traditional defined-benefit plan to a 401(k)-style defined contribution plan.

Wolf last week hinted at a new pension mechanism called a "stacked hybrid," which would keep the existing pension formula as a foundation benefit, while maxing out the plan above a certain income level and then basing benefits on a 401(k)-style plan.

The governor's budget also calls for $3 billion in pension obligation bonds, a measure highly disputed within the capital markets. Fitch and Moody's last week, each referencing the Kansas Development Finance Authority's $1 billion sale of those bonds, said they do not fix the pension underfunding problem.

Fitch called the Kansas deal "the latest issuance of a financing tool often considered by governments with low pension funded ratios. The underlying question is whether they are sustainable without additional reforms to benefits and funding practices."

 

 

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