Gov. Tom Wolf and legislative leaders resumed negotiations Thursday that could break a seven-week stalemate over Pennsylvania's proposed $30 billion fiscal 2016 budget.
Wolf, a Democrat, and heads of the Republican-dominated legislature are zeroing in on education and tweaks to the state employee pension system.
After a brief meeting on Wednesday, the GOP offered to bump basic education funding from $100 million to $400 million provided the governor sign off on a modified pension benefit overhaul bill similar to the one Wolf vetoed in late June. It would involve a hybrid defined benefit-defined contribution plan while moving new state employees into 401(k)-style defined contribution.
"This is a one-time offer," said Senate Majority Leader Jake Corman, R-Bellefonte. "We feel that we've come a long way. We're meeting the governor's number one goal in this budgetary process. He needs to meet our number one goal."
Wolf's tone was also optimistic.
"They put a good offer on the table on something very important to me, and it looks like we're making progress," said Wolf, a first-year governor.
Hummelstown, Pa., actuary and pension expert Richard Dreyfuss, while still studying the pension proposal, remained skeptical.
"There are no proposed pension funding reforms - that is, added contributions needed to these already underfunded plans," said Dreyfuss an adjunct fellow with the Manhattan Institute for Policy Research. "Not having a proper debt management plan is what has led to our credit downgrades."
All three major bond rating agencies whacked Pennsylvania last year over an unfunded pension liability estimated at $53 billion. Fitch Ratings and Standard & Poor's rate the commonwealth's general obligation bonds AA-minus. Moody's Investors Service rates them Aa3.
Fitch said Thursday that the impasse poses no threat to the commonwealth's ratings.
The state constitution requires payment of GO bonds in the absence of a budget.
"Fitch's rating with a stable outlook incorporates our expectation the commonwealth will also ensure, even without a budget, timely debt service payments on bonds normally paid from appropriations," said director Eric Kim. "Further, Fitch expects Pennsylvania to support other governmental entities, including local school districts, reliant on commonwealth transfers to pay debt service."
Fitch's emphasis will be on details of the final budget, including the extent to which it makes progress in reducing Pennsylvania's structural budget gap. The impasse itself does not affect Fitch's view of the commonwealth's credit quality, said Kim.
Wolf said Wednesday the final budget should include reimbursement for school districts and small nonprofits for interest payments incurred on loans as a result of the budget impasse.
The commonwealth already provides reimbursement to qualified small businesses for interest when the commonwealth does not pay an invoice for 45 days. Wolf supports extending this to school districts, similar to the reimbursement the commonwealth provided in the 2003 budget, and to small nonprofits.
On Tuesday, health and human services organizations asked Wolf and the legislature to provide some form of stopgap spending plan, should the impasse linger. According to a United Way of Pennsylvania survey, 23% of human services agencies have already exhausted contingency funds by mid-August.
