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From the archives 2020

Remaining $1.3 billion in coronavirus cash to prop up Pa. state budget rather than help ailing industries

by Ed Mahon of Spotlight PA and Cynthia Fernandez of Spotlight PA |

The U.S. Treasury Department gives states broad discretion to use aid funding to pick up payroll costs for state employees who spend substantial time responding to the pandemic.
KALIM BHATTI / The Philadelphia Inquirer

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HARRISBURG — Against the pleas of restaurant owners, service providers, and other industries, Republican leaders in the legislature are moving forward with a plan to use all $1.3 billion in remaining coronavirus relief aid to pay for the state budget.

In order to avoid raising taxes or borrowing, the legislature intends to use the federal stimulus money to pay the salaries of state-employed public health and safety frontline workers, according to summary materials provided to House Republican members.

The funds would go to agencies including the Department of Corrections, Pennsylvania State Police, and the Department of Health, a spokesperson for the Republican chair of the House Appropriations Committee told Spotlight PA.

“This is agreed to,” said the spokesperson, Neal Lesher, when asked if the plan had the support of Gov. Tom Wolf and the Senate on Thursday morning.

Lyndsay Kensinger, a spokesperson for Wolf, did not directly respond when asked if the plan has the governor’s support. “The administration is working with the General Assembly to complete a balanced budget by the end of November,” she said. “It is critical for us to finalize the budget by November to avoid furloughs and any stoppage of critical payments to providers and grantees.”

Senate Democrats were involved in the negotiations, said spokesperson Brittany Crampsie. “The budget reflects the time of crisis we currently face,” she said in an email. “We will likely have some support for it, but we do not have a caucus-wide position.”

The House Appropriations Committee on Thursday approved the plan along party lines. The full House and Senate are poised to take up the measure, as well as the budget-enabling fiscal code, when they reconvene Friday.

In addition to the federal cash, the plan relies on transferring $531 million from special funds — such as $185 million from a workers’ compensation security fund and $100 million from the state’s rainy day fund — to make up lost revenue.

The transfers are needed to make up for an estimated $1.8 billion budget deficit. The plan to fund the final seven months of the fiscal year — as well as a partial, stopgap budget passed earlier this year — bring the total operating budget to $35.5 billion, a 2.2% reduction in spending compared to the previous year.

The budget plan was a disappointment to interest groups like restaurants, hospitals, social service providers, and public utilities, which for months have urged lawmakers to use more of the relief funds to support them and prevent small businesses from shuttering.

Guidance from the federal government says states can’t use CARES Act money as a way of filling in lost revenue. But the U.S. Treasury Department does give states broad discretion to use this funding to pick up payroll costs for state employees who spend substantial time responding to the pandemic — in turn, freeing up revenues to pay for other expenses.

That includes $200 million needed for property tax relief after the federal government rejected the state’s plan to use CARES Act money for that purpose.

Nathan Benefield, vice president and chief operating officer of the conservative Commonwealth Foundation, said spending reductions and using money from special funds “are positive developments for taxpayers,” but the plan to use one-time federal CARES Act dollars could set the state up for more fiscal challenges and tax hikes in the future.

The plan leaves “a major budget hole for next year and sets up a grim situation for the next budget,” he said, adding that there “was opportunity to do more there.”

The progressive Pennsylvania Budget and Policy Center also cautioned that the proposed supplemental budget relies heavily on optimistic revenue estimates and on federal medical assistance funding “which may not be forthcoming.”

“[T]his budget plan again puts off difficult decisions to the future,” the center’s director, Marc Stier, said in a statement. “Given the reliance on one-time funds and the uncertain prospects for the economy, especially in light of the resurgence of COVID-19 which will lead to a slow recovery in state tax revenues, this budget plan again puts off difficult decisions to the future.”

While the major players appeared to be on the same page Thursday, House Democrats earlier this week were continuing to push to use the $1.3 billion in direct aid to struggling industries, and they voted against the new plan in committee. It’s still unclear if Congress will send states more federal relief before the end of the year. And already on Thursday, some of these industries were worried how they would survive without more aid.

“The industry definitely needs some type of bail out,” said Chuck Moran, executive director of the Pennsylvania Licensed Beverage and Tavern Association.

On Thursday afternoon, he was still waiting to hear if lawmakers would provide any aid to bars and restaurants. He said lawmakers previously appeared willing to provide grants.

“Hopefully, they’ll remember what they had talked about in the past,” he said.

Industries that received part of the $2.6 billion in CARES Act funding lawmakers distributed earlier this year are also looking for more assistance. That includes groups that provide services to people with autism and intellectual disabilities.

Cherie Brummans, CEO and executive director of the Alliance of Community Service Providers, which is based in Philadelphia, said some providers are on the brink of closing.

“It’s a domino effect. It’s not just the organizations,” Brummans said. “It’s the people who work for them, the families who depend on them, the people who are served.”

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