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Money to Flow to Pennsylvania Schools, Counties, and Nonprofits Impacted by Budget Stalemate

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State and federal tax money should start flowing as early as Tuesday to the cash-strapped school districts, counties and human services organizations that suffered the brunt of the protracted budget fight between Democratic Gov. Tom Wolf and the Republican-controlled Legislature.

The unlocked money equals an estimated $3.3 billion in 16,400 payments that had not been processed since July 1, according to the state Treasury.

Out of those back payments, $117 million will start flowing to the 16 school districts in Lehigh and Northampton counties.

More than $35 million is due to the two counties, mostly for human services costs.

And about $1.1 million will head to the Community Action Committee of the Lehigh Valley, the region's largest provider of services to homeless, jobless and low-income residents.

"Treasury staff worked during the past several weeks to pre-audit thousands of critical payments and delivered them in days rather than weeks," state Treasurer Timothy Reese said in a statement.

While local officials are breathing easier in the new year, they still are upset over Pennsylvania's record-setting budget fight. Wolf's partial vetoes mean the budget fight is not completely over, and it has bled into local officials' financial planning for their own 2016 budgets.

The frustration is most keenly felt in school districts, which will receive about six months' worth of 2015-16 funding due to the partial vetoes Wolf instituted Dec. 29 after the Legislature backtracked on a costlier budget compromise.

The single biggest cut Wolf made in the budget occurred at the Department of Education. He slashed the state's per-pupil subsidy—the Department of Education's largest expense item—by 55 percent to about $2.5 billion, which is why districts are only getting part of what they are owed.

"The governor's blue line [veto] released emergency funding to schools through Dec. 31," Wolf's spokesman, Jeff Sheridan, said. "The governor called on the Republican leaders to call the Legislature back into session to provide the historic increase in education funding they all agreed to in the compromise budget."

The Allentown School District will start receiving about $48.5 million, or 47 percent of its total 2015-16 allocation, to cover reimbursements for Social Security payments, pensions, transportation, basic education, special education and Ready to Learn grants, state Department of Education records show.

The Bethlehem Area School District will get about $15 million, or about half of what it is owed.

That money will help, but it's still not enough, said Bethlehem Superintendent Joseph Roy. It's especially frustrating, he said, because the district is preparing its 2016-17 school-year budget and is guessing as to what state revenue might look like.

"We still need a state budget," Roy said. "This 'sort of' budget didn't solve any of the larger problems in public education funding, nor did it answer the question as to what funding we will receive for the current school year."

In Lehigh County, the state checks mean the county will not have to take out loans to sustain operations. Executive Tom Muller's administration was preparing to borrow up to $30 million, which could have funded operations until local taxes started arriving in late March and April. The state owed the county approximately $15.6 million.

"We're delighted it's happening. It took a long time for it to happen," said Lehigh County Director of Administration Dan McCarthy.

Things didn't quite pan out as well in Northampton County.

Executive John Brown could not provide an estimate Monday as to how much money the county is owed, but he believes it's more than $20 million. County Council approved borrowing up to $45 million in December, and the county started tapping that Monday to finance its services and payroll until the state money arrives.

The budget stalemate also prevented federal tax money from passing through the state to schools, counties and nonprofits like CACLV.

About three quarters of CACLV's money was from the federal government, said Ross Marcus, deputy executive director of CACLV. But the lack of money was only part of the problem, Marcus said. The other part was frozen tax credits.

The state also withheld annual tax credits that corporations receive for donating money to nonprofits like CACLV or private and parochial schools.

Businesses and nonprofits are still waiting for the state to send letters granting the tax-credit status for 2015. Until those letters are received, businesses and nonprofits cannot list the donations on their annual federal tax returns.

CACLV was preparing to curtail programs if the tax credit freeze was not lifted, Marcus said. Although it has been lifted, CACLV still has not received all necessary documentation for all tax credits.

"That was as much an issue as the actual cash," Marcus said.

In March, Wolf proposed a $33.8 billion budget that relied on higher or new taxes on nearly every sector of the economy. He didn't get it.

Around Thanksgiving, the administration and Republican leaders announced plans for a $30.8 billion budget, which included property tax relief and changes to the state pension and liquor systems.

The deal fell apart.

Shortly before Christmas, the House adjourned without holding an expected vote on what was left of the deal—the $30.8 billion spending plan and a pension bill the Senate had passed.

So the Senate passed the House's smaller, $30.3 billion budget that relied on higher cigarette taxes and the higher fees casinos would have paid if the Legislature had adopted Internet gambling.

On Dec. 28, Wolf called the House budget "garbage" and vetoed about $7 billion of its spending, leaving a total spending bill of $23.4 billion.

Differences among the House, Senate and Wolf plans will require more bargaining to reach a final budget. No one can say when that might occur.

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Despite unknowns about the overall size of the state budget and education funding in particular, big and small businesses are breathing easier. That's because the budget stalemate did nothing to slow down or stop Wolf and the Legislature from completing a decades-long phase-out of a centuries-old tax on business' physical assets. The capital stock and franchise tax expired Friday.

In 2008, the tax generated slightly more than $1 billion, state Revenue Department records show. By 2014, it was down 69 percent to $320 million, records show.

"We need to find new revenue," Sheridan said, "but this is an unfair tax the governor has never supported."

The 2016-17 state deficit is expected to be $2.4 billion, according to the Legislature's Independent Fiscal Office.

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