HARRISBURG, Pa. — The question of where to find $2 billion will dominate the upcoming weekend session of the Pennsylvania House of Representatives as Democratic Gov. Tom Wolf and the Republican-controlled Legislature stumble through a three-week stalemate.
House Speaker Mike Turzai, R-Allegheny, wants House members to support a no-new-taxes plan to balance a $32 billion spending package, most of which Wolf let become law last week.
Turzai’s plan would authorize the state to borrow about $1.5 billion and siphon hundreds of millions of more dollars from off-budget programs to patch up state finances shredded by Pennsylvania’s biggest shortfall since the recession.
It is not clear whether it will pass the House or, for that matter, the Senate. Wolf has acceded to some level of borrowing, if it comes with a $700 million to $800 million tax package he views as necessary to avoid a downgrade to a credit rating battered by Pennsylvania’s long-term deficit.
Here is a look at the stakes:
IF IT BECOMES LAW
Wolf would be forced to decide which off-budget programs to raid, and how much cash to divert from each, up to a certain limit. Those could include programs that subsidize the horse racing industry, environmental cleanup and recycling programs, 911 emergency response systems and public transit agencies like the Southeastern Pennsylvania Transportation Authority.
To borrow $1.5 billion, the state could end up paying more than $2 billion over 20 years, including interest and borrowing fees.
The borrowing would be against future proceeds from Pennsylvania’s share of the landmark 1998 multi-state settlement with tobacco companies, which brings in about $340 million annually. Matt Fabian of Municipal Market Analytics in Concord, Massachusetts, said the interest rate would depend on the structure of the financing. If the state backstops the tobacco revenues, the interest rate could be 3.5 percent or slightly higher, Fabian said.
Budget makers also may have to decide, perhaps starting next year, what to do about program money that is diverted to pay installments on the debt.
Currently, the tobacco settlement money underwrites anti-smoking programs, health research grants, hospital care for the uninsured and nursing, home health and medical care for the elderly, poor or disabled.
IF NO REVENUE PLAN PASSES
The state is facing a downgrade to a credit rating that already is among the nation’s lowest, and Wolf will face the decision of freezing spending on programs already approved by the Legislature.
A downgrade would force the state to pay higher interest rates, about $10 million for every $1 billion the state borrows for a wide range of capital projects, from school buildings to highways, bridges and roads. That could inflict higher costs on schools and local governments that share in paying for the projects.
Freezing $2 billion in a roughly $32 billion plan could hurt.
For now, nearly $600 million in aid to Penn State, the University of Pittsburgh, Temple and Lincoln universities and the University of Pennsylvania’s veterinary school still is hung up in the Legislature. Failing to pass a revenue plan would endanger that money.
Wolf might not have to make a final decision about which program money to freeze until mid-year. That said, it could bite into subsidies for schools, hospitals and a wide range of social services that are administered by counties, while wiping out smaller pots of money for grants, tax credits and more.
So far, the Wolf administration has put about $190 million for the current fiscal year into budgetary reserve, according to legislative officials. That covers a wide range of programs in the Education, Agriculture, Human Services, Health and Community and Economic Development departments.
The Wolf administration says it has made no final decisions on what spending to freeze.
IF THE ALTERNATIVE RESURFACES
Lawmakers and the Wolf administration have discussed a range of tax increases to package with the borrowing. Those included new or higher taxes on electric and natural gas utility bills, telephone services and cable bills. Wolf — along with Democratic lawmakers and some Republican moderates — have pressed for a severance tax on Marcellus Shale natural gas production.
They also discussed a major expansion of casino-style gambling in Pennsylvania, the nation’s No. 2 commercial casino state. However, disagreements between the House and Senate over new gambling venues — bars vs. casinos — stalled the legislation.