The Pennsylvania Senate passed a $30.8 billion budget by a 43-7 vote on Monday afternoon, though without a tax package. It goes to the House, whose leaders backed off from negotiations over the weekend.
Pennsylvania's budget stalemate is in its sixth month, with Democratic Gov. Tom Wolf and the Republican-dominated legislature at odds. Only the Keystone State and Illinois have unsigned budgets.
Monday's budget bill calls for an additional $350 million in education spending, up 6%. "It is long past time for the legislature to move ahead with this agreement and end this impasse," Wolf said Sunday.
The Senate also signed off on legislation over the weekend to place new state and school employees into hybrid defined benefit-defined contribution pension plans.
The budget bill arrives in the House amid questions.
"As of right now, there are not a significant amount of Republicans willing to vote for any kind of tax increase that is needed to increase the services that are urgently needed," said Rep. Mark Cohen, D-Philadelphia.
Bargaining points include an increase in the sales tax to 7.25% from 6%, a proposed shift of $600 million in gambling revenue to the general fund to pay for pension obligations, and at least partial privatization of the state-run liquor stores.
"We're looking at gaming, some gaming revenues, obviously liquor revenue's a big one," said Steve Miskin, press secretary to House Majority Leader Dave Reed, R-White Township, and spokesman for the House Republican caucus. "Although there are truly some members that truly do not believe that now is the best time to raise taxes on Pennsylvanians."
All three major bond rating agencies downgraded Pennsylvania last year, citing persistent budget imbalance and the state's unfunded pension liability, estimated at up to $57 billion. Moody's Investors Service rates Pennsylvania Aa3 with a negative outlook. Fitch Ratings and Standard & Poor's rate them AA-minus, with stable outlooks.
The impasse has hit school districts and social-service agencies – who depend upon state reimbursements – especially hard.
"The degree to which delays or potential reductions in funding affect these entities varies and, as a result, when events like these unfold, determining the impact to each individual obligor-security is a critical component of our credit analysis," Gurtin Fixed Income said in a commentary.
Luzerne County, home to Wilkes-Barre, and the Scranton School District in Lackawanna County, last week received judicial approval for emergency borrowing of $20 million and $31 million, respectively. Other counties are under the glare of bond analysts and rating agencies.
"Luzerne County has had some troubles brewing in the past but this year the budget is rearing its ugly head," said David Fiorenza, a Villanova School of Business professor and former chief financial officer of Radnor Township, Pa. "The commonwealth and governor's budget stalemate is fueling the fire as well. Without a budget at the state level and with the deficit at the county level, it is like putting out the fire with gasoline."
Luzerne has been seeking a lender after Public Financial Management Inc. pulled a financing package following the county's downgrade by Standard & Poor's downgraded the county's general obligation bonds two notches to junk-level BB-plus from BBB.
"PFM was correct and right not to move forward [given] the S&P downgrade," said Fiorenza. "I have worked with PFM in a few municipalities and they have the investors' interest in the forefront."