PA Budget Negotiations Continue Without FMAP Money: Lawmakers believe they can reach agreement by Wednesday’s deadline.

PA Budget Negotiations Continue Without FMAP Money: Lawmakers believe they can reach agreement by Wednesday’s deadline. 

 

With just 3 days left (6/27/10) until Pennsylvania’s Constitutional June 30 annual budget deadline, last Friday’s (6/25/10) announcement of the loss of Pennsylvania’s FMAP money makes it highly unlikely that PA Lawmakers will pass the State’s budget on-time. Negotiations continued through the weekend. Lawmakers still believe they can make Wednesday’s budget deadline. 

FMAP Money: On June 16, 2010 Pennsylvania’s Governor Ed Rendell warned that the State would begin laying-off as many as 1,000 of its 71,000 government employees, including teachers, as early as July, 1 if the additional $850 million in federal Medicaid assistance money (FMAP) was not approved in the new Federal Job‘s Bill. The Governor was counting on that money to limit the state’s FY2010-11 budget deficit to $1.2 billion– which would otherwise have to be made up with sharp budget cuts. 

The Jobs Bill: On June 24, 2010 the US Senate failed to approve the $23 billion American Jobs and Closing Tax Loopholes Act, (H.R. 4213) known as the Jobs Bill, or the extenders package. The bill provided for federal extension of unemployment benefits to hundreds of thousands of long-term unemployed workers at a time when 15 million Americans (9.7% of the workforce) are out of work. The bill also provided other emergency stimulus measures to save jobs; protect doctors from a 21 percent cut in Medicare reimbursement rates (possibly causing them to stop serving needy patients); and provided to the states’ additional Federal Medical Assistance Percentages (FMAP) program money so the states can continue paying Medicaid for the “poorest of the poor”. 

The Democrats: For the past two weeks, Senate Democrats led by Majority Leader Harry Reid (D-NV) attempted to push the Jobs Bill through the Senate after it had been stalled there for eight weeks. Reid filed for cloture on the debate with just days before a vote. Senate Republicans rallied their minority coalition that included some moderate Democrats. A 2/3 majority (66 votes) is needed for a cloture vote to end debate (filibuster) in the Senate. On June 24, 2010 the cloture vote failed 57-41 (short by 9 votes). 

The Republicans: According to Senate Republican Minority Leader Mitch McConnell (R-KY), Democrats were using this important legislation to add tens of billions of dollars in unrelated deficit spending at a time when the national debt (not the federal deficit) has reached $13 trillion for the first time in history. This equals nearly $42,000 for every man, woman and child in America. Check out the Republican counterproposal (6/10/10).  According to an ABC report , the sense in Congress is that for the first time in decades, there is no more money.  That Congress is broke wasn’t America’s best-kept secret. I have heard State Senator Andy Dinniman announce publicly for the past three years that Washington has no money left. So is this really why Congress is using the Jobs Bill to hold the line on pay-go rules. (Pay-go rules require every new appropriation to be paid for be an existing offset within the budget. This means that your appropriation would have to come from someone else’s funding.) If this was a turning point for Congress, they are a little late. 

The Economy: Without the Jobs Bill the economic forecast is bleak. Pennsylvania’s unemployment rate for May was 9.1% — only .6% better than the national average of 9.7%. Experts fear that Pennsylvania’s unemployment will grow if 1,000 state workers are laid-off in July, if thousands of nonprofits see their State contracts and grants cut, and if 1 million of the 15 million unemployed workers nationwide lose their $310 per week long-term unemployment benefits. 

What’s next? Last week’s failure of the cloture vote on the Federal Jobs Bill means that the Jobs bill will not be moving forward.– at least not in its current form. Its most important provisions may seek passage in separate bills. Sen. Olympia Snowe (R-ME) and others are now pushing for a separate bill to authorize the extension of federal unemployment insurance benefits and FMAP money for the States. This process could take weeks, if it even happens at all. States may not even get the FMAP funds they were promised if they get any at all. 

The PA State Budget: Governor Rendell’s original budget proposal for FY2010-11 (2/9/10) was $29 billion (That is $ 26.27 billion in state money plus $ 2.76 billion in ARRA money for a total of $29.03 billion). Without the $850 million FMAP money, the Governor’s budget proposal is over a billion dollars short. 

By Saturday night (6/26/10), House and Senate Democratic leaders said they would not approve a budget of less than $28.2 billion. Their plan included a $300 million increase for education. This would have required new revenue sources (tax increases). House Republican leaders were unwilling to support the 1% increase over last year’s $27.8 billion budget. Even at that level, Rendell claimed that it could lead to 1,000 teacher layoffs. 

Last week, Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, (R-Delaware) indicated that the Senate Republicans would approve a budget of $27.5 billion. Their budget proposal takes into account the actual revenue that the state has received, and NO additional “revenue enhancements“ (pronounced “tax increases“). By Saturday night (6/26/10) Senate Republican leaders were willing to go as high as $27.8 billion with no tax increase, but that required cutting a Rendell priority of $354 million additional funding for school districts. By Saturday night, only $400 million separated Republican and Democrat positions on the state budget. If the agreement between the Governor and the four legislative Caucuses leads to an on-time budget, the total state budget for FY2010-11 would likely be $27.9 billion. 

According to the Harrisburg Patriot-News Editorial Board, “$28 billion is about as high as the state budget can reasonably go. The easy revenue sources have already been tapped, the Rainy Day Fund has been depleted, and there is no appetite in the Legislature for broad-based tax increases on individuals or corporations. To further chop programs — especially in social services and environmental monitoring — at a time when so many in the state are struggling and our gas drilling industry is expanding at a breakneck pace would be unwise. Make no mistake, there still will have to be painful cuts to balance even a $28 billion budget, but to go much lower than that would be to start balancing our state’s budget in detrimental ways to our citizens.”

As of last week, there was much speculation that the state would raid $340 million of its tobacco settlement funds, which are part of a $206 billion multi-state settlement with tobacco companies to compensate for smoking-related health expenses.  While there is much satisfaction over the $261 million that the state collected from its tax amnesty program, there is also much concern that creative accounting tricks could put-off a few hundred million in debt until next year’s budget. Beyond that, cut will most likely come from nonprofit programs. 

OPEN LETTER TO ALL NONPROFITS: 

AN URGENT WARNING WAS SHARED WITH ME BY A HIGH RANKING MEMBER OF THE GOVERNOR’S STAFF. I was explaining that another budget impasse like the one we had we had last year would kill smaller nonprofits with state or county contracts or subcontracts, and exacerbate the hole in the social safety net. Once these nonprofits scale back or close their doors, the business interruption costs, interest on borrowed money, and the loss of skilled labor can not be recovered– not to mention the impact on the communities they serve. His response was poignant and extremely concerning. He said “Unless nonprofits get their butts in gear and lobby hard for revenues and against draconian funding cuts, they will be closing their doors for good.” I am not sharing this with you lightly. THE SITUATION IS SERIOUS. 

Budget Impasse: So how long will it take to pass the state budget this year? What happens if lawmakers can’t get the job done by June 30? That’s the 28 billion dollar question. Last year (2009), it took the PA legislature an additional 101 days after the June 30 Constitutional deadline to pass the state budget. For three and a half months, the State withheld billions of dollars in payments that it owed for services rendered on contracts and grants. While big agencies debated funding priorities and lobbied to secure their budget line items, thousands of smaller nonprofits that relied on this money to service state or county contracts or grants, were forced to cut services, lay-off staff, or close their doors. Counties, schools and nonprofits continued to provide vital services in the absence of state funds, but at their own expense. Unlike counties and schools however, most nonprofits are small organizations, lacking sufficient reserves to absorb the cost of late government payments on contractual obligations. Nonprofits that survived the 2009 budget impasse, discovered the hard way that bridge loans must be paid back with interest; furloughed workers may never return; and late fees and business interruption costs depleted any reserves they had left. The result was cuts to human service funding, fewer nonprofit services, and an angry electorate who lost faith in State government. 

Budget Reforms: The 2009 Budget Impasse demonstrated that the only sure way to prevent another impasse is to reform the budget process.  Read Budget Process Reforms Can Prevent a Budget Impasse.

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