Pennsylvania Gov. Tom Wolf backed down to end the impasse over the nine-months-late $30 billion budget for fiscal 2016, saying Wednesday he would allow the budget to become law without his signature.
That leaves Illinois as the only state without an enacted budget for 2016.
Wolf, a Democrat at odds with a Republican-dominated legislature since taking office in January 2015, urged lawmakers to deal with a $2 billion deficit for the proposed $33 billion spending plan for fiscal 2017 that is due June 30.
“Let’s be clear: the math in this budget does not work,” Wolf told reporters at the state capitol in Harrisburg. “Next fiscal year -- that already has a $2 billion deficit -- will now begin with an extra $300 million deficit.”
Pennsylvania’s structural deficit and an unfunded pension liability estimated at up to $63 billion have triggered five bond rating agency downgrades in the past three years.
Standard & Poor's placed its AA-minus general obligation rating on credit watch with negative implications March 3. Fitch Ratings also assigns Pennsylvania GOs its AA-minus rating while Moody's Investors Service rates them Aa3.
Wolf approved 80% of the budget in December. Allowing the remaining $6.6 billion to take effect will release funding for school districts, which have had to borrow about $1 billion in past-due funding.
State Auditor Eugene DePasquale said many districts had planned to close by the end of April. Social service agencies were also feeling the pinch.
DePasquale, in an interview in Harrisburg on Monday, said lack of compromise is at the root of Pennsylvania’s dysfunction.
“Both sides kept assuming the other side would blink,” DePasquale, a Democrat, said at a conference sponsored by Widener University Commonwealth Law School. “Neither blinked and they didn’t know how to get out of it.”
Fiscal 2017 starts July 1.
Tom Kozlik, a managing director at PNC Capital Markets in Philadelphia, said school districts must face a new reality.
“This new setting is one where revenues are not rising as quickly as they did in the past, and where expenditure demand is outpacing revenue growth. Most local governments and school districts recognized this and have made changes,” he said.
“Some have not adjusted to the new fiscal reality, however, and we are seeing this result in multiyear structural imbalances, credit deterioration and rating downgrades.”