CAPITOLWIRE:  Could PA’s budget hole of at least $600 million been avoided?

By Chris Comisac 
Bureau Chief

HARRISBURG (Dec. 14) – You wouldn’t have known it from the tone in which the news was delivered, but Pennsylvania’s state budget is going to be short by at least $600 million this year.

This is the state budget that was supposed to be the responsible budget, approved by the adults in the room who didn’t want the budget to rely on one-time revenues to pay for its $1.4 billion hike in state spending.

There are still plenty of those one-timers in the 2016-17 budget – $882.5 million compared to $1.34 billion in 2015-16, according to the state budget office – but they appear to have been replaced with some questionable budget assumptions.

The state’s recurring revenue sources “have unfortunately been lagging,” state Budget Secretary Randy Albright told Capitol reporters Wednesday morning during his mid-year budget briefing.

Yes, the economy did go through a bit of a rough patch early on during the current fiscal year.

But that doesn’t mean in mid-July, lawmakers and Gov. Tom Wolf’s administration – all desiring to avoid another budget impasse only a few months after the last one was resolved – didn’t use revenue and spending estimates that were a bit rosier than they should have been to get a budget done.

Albright made a point of saying the administration is largely in agreement with the state Independent Fiscal Office, which about a month ago said the Commonwealth was headed for at least a $500 million deficit this year.

During that Nov. 15 IFO briefing, IFO director Matt Knittel noted his agency started with a revenue estimate that was $266 million less than what the finalized 2016-17 state budget incorporated. However, even with a more conservative estimate, the IFO still didn’t anticipate the revenue soft patch – coming up about $200 million short of expectations – during the first quarter of the current fiscal year.

But there’s also the matter of somewhere between $188 million and $388 million in additional human services spending for which the 2016-17 state budget did not account.

A month ago, the IFO said the Wolf administration was trying to determine how to address as much as $388 million the Department of Human Services might need following a departmental rebudget that identified potential funding shortfalls for such things as mental health services; Medical Assistance fee-for-service; home- and community-based services; long-term care and long-term managed care; Capitation and Workers with Disabilities; and attendant care. Basically just about everything DHS does.

Albright said Wednesday the administration has been working with the DHS for several months and is hopeful it will be able to shave those DHS funding needs down to $188 million, maybe less. However, right now the department appears to need close to $200 million more than the 2016-17 budget requested for it.

When I ran into Senate Minority Leader Jay Costa, D-Allegheny, Wednesday afternoon, I asked him if the budget incorporated ambitious expectations for revenue and may have undercounted what it would take to provide human services.

“It’s not the first time we’ve not met budget projections, so I would suggest to you I don’t think they were too rosy,” responded Costa. “I think there was thoughtful consideration going into those numbers and they made sense.”

While Costa is correct about prior budget projections being wrong, that doesn’t mean it’s okay or that budgeteers weren’t … well, let’s just say overly optimistic.

Of the $600 million shortfall identified by the administration, $454 million, or more than 75 percent, is due to what appear to be the 2016-17 budget revenue and spending assumptions – something that isn’t all that surprising to House Democratic leaders.

“The secretary’s briefing underscores the concerns that Leader Frank Dermody and Chairman Joe Markosek expressed last summer about the tenuous assumptions built into this year’s budget,” wrote House Democratic Caucus spokesman Bill Patton in an email Tuesday afternoon. “It’s safe to say the gap right now is at least $600 million. It could go higher.”

And things could get worse because revenues don’t rebound, or it could also be due to expected revenue that never comes to pass: for example, there’s $100 million in new revenue from an expansion of gaming assumed by the 2016-17 budget, but the Legislature has yet to make it a reality.

Lawmakers, and Albright on Tuesday, said there’s still time to get that funding worked out since the first year of expected revenue comes from set fees, not taxes that would be impacted by a shortened tax period. However, infighting between House and Senate Republicans about gaming expansion has yet to be resolved.

Albright did say some departments have already put a portion of their 2016-17 funding in budgetary reserve, although he couldn’t give a precise total, but it’s still “hundreds of millions” of dollars. Following Wednesday’s briefing, he did caution that those reserves don’t necessarily mean that funding won’t ultimately be spent by those departments.

And if you’re looking for any other details about how the administration plans to address this fiscal year’s $600 million – at least – problem, circle Feb. 7 on your calendar.

“The governor will ultimately, when he gives his February budget address … at that point he will address all the steps that we intend to take in a much more detailed manner,” said Albright. The budget secretary did say “we’re taking whatever reasonable steps we can take,” but also noted they want to be “careful,” “smart,” “surgical,” and “deliberate” about what they do, not “clumsy.”

When pressed about what the administration is looking at doing, Albright responded, “We’re still in the middle of that work, that product isn’t complete – we will get to Feb. 7 soon enough.”

If the latest hoped-for economic and revenue assumptions continue to not pan out, Feb. 7 – with nearly two-thirds of the fiscal year gone – might be too late.

Updated: December 14, 2016 — 4:47 pm