HARRISBURG — At least six Pennsylvania counties are exploring taking out lines of credit to cover expenses as the state budget impasse continues, debt that would likely be passed on to taxpayers.
County governments have relatively few options as the state misses critical payments totalling billions of dollars. Some are draining their own reserves, cutting services, or laying off workers.
Budget fights, noted Bill Glasgall, an adviser at financial watchdog the Volcker Alliance, are often driven by fiscal hawks who want to avoid government spending. But there’s still a cost when both sides dig their heels in and can't come to terms on a state spending plan. And “somebody's gotta pay the price.”
In Pennsylvania, that somebody includes counties, which serve as the front line of public services ranging from foster care to drug and alcohol treatment. The state is also unable to make payments to nonprofits, public schools, and other education programs.
State lawmakers, meanwhile, are insulated from the worst impacts of a late budget. They continue to collect paychecks (although a handful refuse) and accept perks like per diems, and their staff can’t be furloughed.
Even the counties in the best fiscal positions, with significant cash reserves, suffer in these situations. They earn interest on their reserves, and that passive income can total in the millions annually, boosting public coffers at no cost to taxpayers.
Dauphin County Commissioner Justin Douglas told Spotlight PA that after being forced to tap its reserves during the impasse, the central Pennsylvania county has lost out on $300,000 in interest.
“Each passing day without a state budget,” he added, “results in further losses.”
But that’s not even the worst-case scenario.
At least three counties have or plan to furlough workers due to the late budget: Northampton, Armstrong, and Westmoreland. The latter two counties are represented by the top Republicans in the state Senate: Majority Leader Joe Pittman and President Pro Tempore Kim Ward, respectively.
Armstrong County has closed senior centers and laid off the staff, plus ended reimbursements to foster care providers. If there’s no budget by mid-October, Westmoreland County will furlough 125 employees, including those who work at the courthouse, and reduce hours at its parks.
Northampton County is threatening to make one of the biggest impasse-induced reductions to date. If there is no state budget by Oct. 20, administrators say they plan to lay off all of their human services workers. That would be 175 of the county’s 250 staff members.
In a statement to Spotlight PA, County Executive Lamont McClure said he places the blame for this situation squarely on “the Senate's inaction.”
“Northampton County taxpayers have already paid their state taxes,” he wrote. “To demand that they pay again through county taxes, particularly by forcing the County to consider loans that will accrue interest we can never recoup, is unconscionable. County real estate taxpayers are not open wallets to be dipped into whenever the State Legislature fails to do its job. Northampton County cannot, and will not, bail out the Commonwealth of Pennsylvania.”
SEIU 668 President Steve Catanese, whose union represents these workers, told Spotlight PA that while he’s sympathetic to McClure’s argument and “the budget stalemate is preposterous,” he thinks the county needs to explore other options, like taking out a loan.
“In an ideal world, they wouldn’t have to. But you don’t burn your house down because you might not be able to make a mortgage payment,” he said.
That conflict illustrates counties’ catch-22: If they take out loans to cover these short-term, impasse-induced expenses, they’ll incur long-term costs because they will have to pay off the interest on those loans, anywhere from 4% to 7%.
At least one alternative to the private market is on the table. Last week, state Treasurer Stacy Garrity, who is running for governor, announced a $500 million program to provide loans to counties and Head Start providers to help them get through the ongoing impasse.
A Treasury spokesperson said that the office sent out “about 500 emails to the eligible organizations” on Monday.
“We all know there's a lot of need, but we needed to start someplace,” Garrity said.
The money would come from the state’s large but unappropriated cash reserves. Under state law, the treasurer can loan up to 10% but is required to charge interest. Garrity said she’d offer the loans at 4.5%, slightly higher than the Federal Reserve's current baseline rates.
Republican leaders in the state Senate say they plan to introduce legislation that would forgive interest on these loans while still paying back the principal.
“I appreciate Treasurer Garrity taking action to prevent any disruption of services, and this complimentary [sic] action will ensure more state dollars can be put to good use in serving people in need, as we work on this bill to minimize cost impact to our partners even more,” said Appropriations Committee Chair Scott Martin (R., Lancaster), a former county commissioner who served on the board during a nine-month impasse in 2015.
This year’s impasse comes due to deep disagreements over the state’s fiscal future. While Pennsylvania has almost $11 billion in cash reserves, they have shrunk in recent years as state spending has outstripped annual tax revenue.
As such, state Senate Republicans have dug in against all but a modest spending increase on last year’s $47.6 billion budget, while Gov. Josh Shapiro and state House Democrats have argued that there are pressing needs for recurring funding for transit, education, and health care.
Talks between the sides have ebbed and flowed since the June 30 deadline came and went. Despite occasional public promises from lawmakers that a deal is close, and a handful of concessions from Democrats, their secretive private talks have yet to bear fruit.
In a statement, Shapiro spokesperson Rosie Lapowsky said that “funding critical services across the Commonwealth can only happen if State Senate Republicans stop playing politics and come back to work, find agreement with the State House, and send a budget to the Governor’s desk.”
“There is no excuse for their inability to pass a budget with $11 billion sitting in the bank – it’s past time for them to do their jobs and send a budget to the Governor’s desk for signature,” she added.
Impasses don’t pack as much of a punch as they used to. State employees, for instance, are still paid due to a 2010 court ruling. But the consequences on the ground are getting dire for many others.
The Children’s Home of York receives reimbursements from nine counties that use its services, which include foster care, adoption, and residential psychiatric treatment. President and CEO Ron Bunce said four of those counties — Berks, Delaware, Lancaster, and Westmoreland — will cut or totally withhold their usual payments starting in October, a monthly loss of $47,000 for the organization.
“We're not like a manufacturing plant where we can shut down an assembly line,” he said. “We have kids in our care that we're responsible for, and we have to continue to provide that level of care.”
CHOY has increased its line of credit, and Bunce said if the impasse lasts much longer, its only real option is going to be taking on debt.
“We need the state to be a reliable partner,” he said. “We can't continue carrying the burden alone, and public-private partnerships only work when both sides are held accountable.”