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By Chris Comisac
Bureau Chief
Capitolwire

HARRISBURG (Sept. 20) – As warned by many, credit rating agency Standard and Poor’s downgraded Pennsylvania’s bond rating.

“The downgrade largely reflects the commonwealth’s chronic structural imbalance dating back nearly a decade, a history of late budget adoption, and our opinion that this pattern could continue,” said S&P Global Ratings credit analyst Carol Spain on Wednesday about the decision to reduce Pennsylvania’s general obligation bond rating from AA- to A+. The downgrade increases the cost of borrowing by the Commonwealth, which in turns costs taxpayers more.

Spain added the downgrade – the sixth by the three major credit rating agencies since 2012 – reflects the weakening of Pennsylvania’s liquidity position, notably the delay or non-payment of scheduled expenditures for the first time in the Commonwealth’s history.

S&P noted state Treasurer Joe Torsella and Auditor General Eugene DePasquale cited the lack of near-term prospects of a balanced budget in their decision to refuse to authorize, as has been done in past years, lending to the state’s General Fund. Without a short-term loan from the Treasury, the state’s cash flow situation this month – revenues collected later in the month, but bills to pay earlier in the month – prompted the Commonwealth to delay paying $1.167 billion to Medicaid managed care organizations and a $581 million payment to cover the state’s share of public school employee pension obligations.

“We understand that the Commonwealth plans to make payments to both the Medicaid insurers and school districts within a week of the scheduled due dates; however, in the absence of additional liquidity, and with the likely need for external borrowing, these late payments could recur,” Spain said.

And while the ongoing budget mess, and the proposals offered by both the House and Senate, are major concerns for S&P, the agency had more of a problem “from a credit perspective” with the delayed payments.

“Deficit borrowing does not exemplify strong budget management practices, but, in our view, borrowing that restores the Commonwealth’s liquidity to a position in which it can make timely payments would be preferable from a credit perspective than an accumulation of unpaid bills,” explained Spain.

Wednesday’s downgrade of Pennsylvania’s credit rating appears to be a bit of a Rorschach test, with the reactions to the downgrade depending on the ideological and policy perspectives of the state officials reading the report.

“For months, I have warned that a credit downgrade was looming. I have said repeatedly for three years that we must responsibly fund the budget with recurring revenues. My budget proposal was balanced, cut more than $2 billion in expenditures and consolidated agencies, while also fixing the deficit,” said Gov. Tom Wolf in a statement Wednesday morning.

Senate Republican leaders, who like the governor have been urging a longer-range budgetary perspective, added in a combined statement: “The significance of this downgrade is something that we grasp and is part of why the Senate worked to finalize a responsible budget package in July. We agree with S&P’s concerns about the need for stability in our financial plans to address the ongoing structural deficit. We are concerned about the overall fiscal health of the Commonwealth. The perceptions of Pennsylvania and its finances are vital when attracting economic growth of small and large employers.”

Legislative Democrats were more pointed in their assessment of the situation, blaming House Republicans.

“The plan that House Republicans finally passed last week was a bad joke. It cuts vital services and doesn’t add up. It used almost every gimmick that the credit rating agencies specifically warned against. Costing Pennsylvania taxpayers millions of dollars in future costs is no joke, but that’s what House Republican obstruction has achieved,” said House Minority Leader Frank Dermody, D-Allegheny.

“Given the House Republicans’ inaction for months followed by the passage of an irresponsible plan, it is not surprising that Pennsylvania’s credit rating was downgraded. Their plan was revenue deficient and would fail to put Pennsylvania on solid financial footing,” added Senate Minority Leader Jay Costa, D-Allegheny. “After review of the House Republican plan – including the $630 million in fund transfers – S&P took decisive action to downgrade our credit rating.”

House Republicans seized on S&P’s concern regarding unpaid state bills.

“When those in charge of the checkbook – the same fiscal officers who approved the deficit spending last fiscal year – very publicly refuse to pay bills, even as bank accounts hold billions, of course our credit rating will take a hit,” the leadership of the House Republican Caucus stated in a press release.

“Pennsylvanians are paying taxes and it is very disappointing Commonwealth budget costs will increase thanks to a small group of unknown people at Standard & Poor’s who make decisions based on interviews with a governor and press releases from the state’s fiscal officers,” added the House GOP.

S&P, along with Moody’s and Fitch, are the three main credit rating agencies globally. They wield significant power in the United States, with the federal government requiring banks to use their ratings. Given that influence, the agencies, their ratings and their methods have also been faulted for a least a portion of the many financial crises in this nation and around the world during the past decade.

The House GOP noted S&P’s prior credit rating for the state was AA-, which S&P website indicates Pennsylvania had a “very strong capacity to meet financial obligations.” The new rating of A+ means the state has a “strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.”

 

Despite the various interpretations of the downgrade, state officials – to a person – said the downgrade should be a wake-up call to get serious about balancing this year’s state budget and addressing the Commonwealth’s chronic imbalance, dating back nearly a decade, between expenditures and revenues, which has been eroding the state’s ability to pay its bills without additional short-term borrowing of significant amounts of money.

In addition to lowering the rating for the state’s general obligation bonds, S&P lowered its departmental appropriation rating for Pennsylvania to A- from A, and their departmental and moral obligation rating to BBB+ from A-, with the outlook for all of the bond ratings as “stable” (compared to the prior “negative” outlook, which means a downgrade is more likely).

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The Department of Human Services has implemented the following staffing changes:


Johanna Fabian-Marks and Gwen Hauck are joining the secretary’s office. Both of these women have previously worked at the PA Insurance Department.

Policy Director Jen DeBell will be leaving DHS on September 15 to join PennAEYC (Pennsylvania Association for the Education of Young Children). Caitlin Palmer will be re-joining DHS as the new policy director.

Patricia Allan has been named as acting executive director of CHIP.

Dr. Dale Adair, the Acting Deputy Secretary of OMHSAS, has left the Commonwealth to head to South Carolina and Ellen DiDomenico will serve as Acting Deputy Secretary until further notice.

RCPA looks forward to working with each of these individuals in their new roles, helping to serve Pennsylvania’s most vulnerable citizens.

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Yesterday, a group of state House Republicans held a press conference announcing they have found more than enough money to pay for both last year’s budget deficit and this year’s additional spending without raising any new taxes.

The more than $2.4 billion in funds would come mostly in the form of transfers from various state special funds that, according to the work group, have “inordinately high” account balances.

The state’s operating budget contains 218 such funds, most having both a balance for yearly operating expenses and a reserves balance (some also have investment fund balances as well), and the work group’s plan is to tap 41 of them. Of that total, the GOP legislators said 34 have been used in a similar fashion in the past, so precedent already exists for what they are proposing to do this budget year.

The transfers are as follows:

Agricultural Conservation Easement Purchase Fund

Proposed transfer: $27 million

Fund balance: $36.7 million

Fund purpose: Created in 1988, this fund was to be used for farmland preservation through the purchase of agricultural conservation easements.

 

Banking Fund

Proposed transfer: $25 million

Fund balance: $36.1 million

Fund purpose: It provides for the administration of the Department of Banking and Securities and regulation of the financial services industry and are to be used in the event of a seizure or liquidation of a financial institution, association or credit union.

 

Environmental Stewardship Fund

Proposed transfer: $72.7 million

Fund balance: $104.8 million

Fund purpose: This fund, which is fueled by money that comes in from landfill fees, is to provide for farmland preservation, open space protection, abandoned mine reclamation, watershed protection and restoration, water and sewer infrastructure, and improvement and conservation of state and community parks and recreational facilities.

 

Hazardous Sites Cleanup Fund

Proposed transfer: $50 million

Fund balance: $80.4 million

Fund’s purpose: Created in 1987, this fund is to finance the cleanup and restoration of abandoned hazardous waste sites in the commonwealth.

 

Keystone Recreation, Park and Conservation Fund

Proposed transfer: $100 million

Fund balance: $147.6 million

Fund’s purpose: This is to provide for increased acquisitions, improvements, and expansions of state and community parks, recreation facilities, historic sites, zoos, public libraries, nature preserves and wildlife habitats.

 

Machinery and Equipment Loan Fund

Proposed transfer: $49 million

Fund balance: $59.5 million

Fund’s purpose: Created in 1988, this fund is to provide low-interest financing for machinery and equipment for Pennsylvania businesses to facilitate their growth, competitiveness, and value-added capacity.

 

Multimodal Transportation Fund

Proposed transfer: $120 million

Fund balance: $189.8 million

Fund’s purpose: Created in 2013, this is to provide for additional funding for passenger rail, rail freight, ports and waterways, aviation, bicycle and pedestrian facilities, roads and bridges and other modes of transportation.

 

911 Fund

Proposed transfer: $40 million

Fund balance: $74 million

Fund’s purpose: Created in 2015, this fund, fueled by a surcharge on cell phone bills, is to support a statewide integrated 911 plan.

 

PA Infrastructure Bank Fund

Proposed transfer: $30 million

Fund balance: $52.9 million

Fund’s purpose: Established in 1997, this fund is to make loans to or enter into leases with qualified borrowers to finance the costs of transportation projects and rail freight infrastructure.

 

Public Transportation Trust Fund

Proposed transfer: $357 million

Fund balance: $477.8 million

Fund’s purpose: Created in 2007, this is to provide dedicated funding for public transportation to cover public transit agencies’ operating costs, capital and asset improvements, and programs of statewide significance.

 

Racing Fund

Proposed transfer: $27 million

Fund balance: $36.2 million

Fund’s purpose: This fund is to be used for the regulation of horse and harness racing.

 

Recycling Fund

Proposed transfer: $75 million

Fund balance: $89.5 million

Fund’s purpose: Created in 1988, this fund, fueled by a fee on waste disposed at landfills or recycling centers, is for recycling and planning grants, market and waste minimization studies, and public information and education activities.

 

Small Business First Fund

Proposed transfer: $25 million

Fund balance: $27.5 million

Fund’s purpose: This provides low-interest loans for small businesses of 100 employees or less for such projects as land and building acquisition and construction, machinery and equipment purchases, working capital, compliance with environmental regulations and municipal or commercial recycling.

 

Underground Storage Tank Indemnification Fund

Proposed transfer: $100 million

Fund balance: $224.7 million*

Fund’s purpose: Created in 1989, this fund is to provide claim payments to owners and operators of underground storage tanks who incur liability for taking corrective action or bodily injury or property damage caused by a release from underground storage tanks.

*Rep. Dan Moul said this was the year-end balance on June 30, 2017.

 

Volunteer Companies Loan Fund

Proposed transfer: $25 million

Fund balance: $49.3 million

Fund’s purpose: This fund provides loans for acquisition and replacement of volunteer fire, ambulance, and rescue company equipment and facilities.

 

Pennsylvania Professional Liability Joint Underwriting Association

The plan proposes to take $200 million from this fund that was created by state law to offer medical malpractice insurance of last resort for doctors and medical facilities.

 

Budgetary reserve

The plan proposes to eliminate $189.4 million that was included in the enacted 2017/18 state budget that was put in reserve by Gov. Tom Wolf to ease the state’s cash flow problem while waiting on a completed revenue package.

 

Among the items that would be impacted by cutting out this funding altogether are the $5 million for Capitol Complex fire protection that is paid to the City of Harrisburg; $4 million for the mobile science van program; and more than $1.1 million for mental health services, along with 65 other budget lines that would get trimmed.

 

Unspent money from past years

The plan includes using $400 million in money that was appropriated in past years but went unspent.

 

Managed Care Organization Assessment Increase

The plan proposes to use the increase in the annual monetary assessment on managed care organizations that went into effect on July 1 to generate $100 million to help fully fund the state budget.

 

Redirecting tax dollars to general fund from restricted accounts

The plan calls for diverting $100 million of tax money that is carved out for special funds and redirect to help bring the state’s general fund into balance.

 

VW Settlement

The plan calls for using the $30.4 million that Pennsylvania received from a settlement of a multi-state lawsuit against Volkswagen over the company’s diesel emissions-cheating scandal.

 

Tapping the PA Liquor Control Board for more money

The plan also would require an additional $25 million transfer from the Pennsylvania Liquor Control Board from wine and spirit sales, for a total of $210 million.

 

Imposing a sales tax on online marketplace

The plan proposes to recover more state sales tax from online purchases to generate $31.7 million. The Senate-passed tax and borrowing plan to balance the budget also included this as a revenue generator.

 

Cutting tax credits

The plan calls for cutting in half funding available for most state tax credit programs but leaves the popular Educational Improvement and Opportunity Scholarship tax credit programs untouched. This is expected to free up $28.3 million.

 

The PA House is scheduled to reconvene next Monday, September 11, and during the session week the House as a whole will determine whether there’s enough support within their own caucus to pass the work group’s proposal. House Democrats and the Governor’s office do not support the work group’s plan.

 

As more information becomes available, RCPA will keep members informed. In the meantime, if you have questions, please contact Jack Phillips, RCPA Director, Government Affairs.

 

*Information contained in this info sourced from a Pennlive.com article – Here’s a breakdown of ‘taxpayers’ budget’ and how it avoids a major tax increase or borrowing money, posted on September 05, 2017, at 06:20 pm | Updated September 06, 2017 at 06:18 am and a Capitolwire news story written by Capitolwire Staff Writers Robert Swift and Carley Mossbrook.

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The draft of the 2018–2019 Community Mental Health Services Block Grant (CMHSBG) is now available for comment. This application was developed with stakeholder input from the Mental Health Planning Council; view/download the application here.

The application provides a review of the current strengths and needs in the Pennsylvania Mental Health System and plans priority areas for improvement.

Any comments or questions regarding the 2018–2019 CMHSBG may be directed to Wendy Tucker via email or phone at 717-705-8280. The comment period will close August 31.

In the interest of time, please feel free to submit comments to Wendy Tucker directly; however, we would be very interested in your input into the draft. Please copy Sarah Eyster or Robena Spangler with your comments. Thank you for your anticipated response to this opportunity.

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Governor Wolf announced that he has selected Teresa Miller, current Commissioner for the Pennsylvania Insurance Department, to lead the Department of Human Services, effective Monday, August 21. Commissioner Miller’s leadership, advocacy, and dedication to the people of the Commonwealth have been evident during her tenure at Insurance, and the Governor’s Office is confident that she will lead DHS with those same characteristics and commitment. As Commissioner Miller joins DHS, Jessica Altman will begin serving at the helm of the Pennsylvania Insurance Department.

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The Federal Department of Labor (DOL) is seeking comments from the public concerning the Fair Labor Standards Act (FLSA) overtime exemptions regulations. As you may recall, the Obama Administration wanted to increase the overtime threshold from $23,660 to $47,476. At the time, RCPA submitted comments to the Department of Labor objecting to the increase. RCPA also presented testimony in front of the Pennsylvania State Senate regarding the impact that the DOL’s Overtime Exemption Rule would have on health and human service providers in Pennsylvania.

Before the rule took effect, a federal judge issued an injunction halting the FLSA rule. The judge granted the injunction because the FLSA rule “exceeded its delegated authority and ignored Congress’ intent such that it supplants the duties test.” (The duties test refers to one of the conditions that determines which workers are exempt from overtime rules.)

You may submit comments on the Federal Register’s website. Questions, contact Jack Phillips, RCPA Director of Government Affairs.

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Today, the Senate sent a package of five code bills back to the State House for their approval. Highlights of the codes bills are below:

Fiscal Code (House Bill 453)

The fiscal code directs how revenue is to be spent and contains local earmarks.

The fiscal code bill will:

  • Transfer $30.4 million from a settlement with Volkswagen to the General Fund. The Commonwealth will receive $30 million from Volkswagen as part of efforts to settle lawsuits stemming from the automaker’s diesel emissions-cheating scandal;
  • Require slot machine licenses issued this fiscal year be paid in full by June 30, 2018, thus generating an estimated $50 million for the General Fund;
  • Require repayment of an earlier $165 million transfer from the Workers’ Compensation Security Fund by July 1, 2019, thus easing General Fund costs this fiscal year;
  • Provide another $25 million for water and sewer projects awarded by the Commonwealth Financing Authority;
  • Authorize a $10 surcharge collected by the Unified Judicial System to be applied to traffic citations, thus generating $10 million for the system.

Additionally, the fiscal code directs spending for a host of community projects identified only as an unnamed education program or health care institution in a county or city with a specific population classification.

Human Services Code (House Bill 59)

The Senate Rules Committee removed a few of its Republican-crafted provisions, though most were left intact. The provisions removed from HB 59 include:

  • Eliminating a premium on disabled children and their families who receive Medical Assistance and have an annual income that exceeds 1000 percent of the federal poverty level;
  • Removing language that would have limited Medical Assistance recipients’ choices for managed care organizations. The House’s version would have required DHS to have a one-year, annual enrollment for medical assistance for an individual who is Medicaid-eligible, so the individual would stay on the MA/MCO plan for one year;
  • RCPA lobbied the Senate relentlessly to have the above provisions removed from HB 59.

The Senate left a provision in HB 59 that could potentially establish employment requirements for certain Medicaid recipients. The bill doesn’t inherently impose a work requirement on able-bodied Medicaid recipients, it would instead instruct the state’s Department of Human Services to seek waivers from the federal government to do so.

Administrative Code (House Bill 118)

The Administrative Code was the place where everyone was expecting the merger of the agencies to appear; however, the Administrative Code bill did not contain such language. Although the mergers are currently missing from the bill, there’s still plenty of time for them to be added.

The bill also:

  • Includes language to transfer $200 million from the Pennsylvania Professional Liability Joint Underwriting Association (PPLJUA) to the General Fund in Fiscal Year 2017-18;
  • Includes a proposal to transfer $200 million is to be transferred from the Pennsylvania Professional Liability Joint Underwriting Association (PPLJUA) to the General Fund. The PPLJUA is a non-profit association created by the state’s MCARE Act to offer medical liability insurance to health care providers.
  • Provides for several hikes in state fees to generate revenue. Some fee hikes include:
    • increasing the fee for a copy of a certified death record;
    • increasing various inspection and permit fees in the department of Labor and Industry;
    • increasing the fee for child welfare background checks from $10 to $13;
    • authorizing the Pennsylvania State Police to increase the fee for criminal background checks; and
    • setting fees on certain higher education institutions when they apply to operate in the state.
  • Extends the sunset date of the Municipal Recycling Fee to Jan. 1 2023 and repeal the transfer to the Solid Waste Abatement Fund;
  • Allows the Office of Attorney General to keep 25 percent of debt, taxes and accounts collected for the state up to $2.5 million per fiscal year;
  • Requires Department of Revenue employees who have access to federal tax information to provide a criminal history record and fingerprints;
  • Allows lawmakers on the Pennsylvania Commission on Crime and Delinquency Board to designate staff to be their alternate on the board;
  • Requires the Department of Health to establish a detoxification program in licensed health care facilities;
  • Requires the Department of Conservation and Natural Resources to study the feasibility of a state park in Wyoming County;
  • Extends the expiration date for permits issued to water treatment facilities that exclusively treat water from conventional oil and gas well operations;
  • Prohibits the closure of a correctional facility without a public hearing;
  • Establishes alternate contracting procedures for construction and renovation of certain county jails;
  • Exempts Living Independence for the Elderly (LIFE) programs from the Older Adults Daily Living Center licensing requirements; and
  • Sets the dispensing fees for the Pennsylvania Pharmaceutical Assistance Contract for the Elderly (PACE) and PACE Needs Enhancement Tier (PACENET) at $10.49.

Public School Code (House Bill 178)

House Bill 178, approved by the Senate Rules Committee on Wednesday night, doesn’t include any reference to additional funding for the EITC, which could be a sticking point for the House Republican Caucus, which strongly favors additional dollars for the program.

Unlike the House’s bill, the Senate’s version also provides schools with the option to conduct security drills in lieu of fire drills and applies a new truancy law implemented last year to nonpublic schools beginning in the 2018-19 school year.

Tax Code Bill (House Bill 542)

 

The Senate approved a Tax Code bill containing $571 million in new or increased taxes, along with borrowing $1.3 billion. Those funds, along with a $200 million transfer of funds and $200 million from a gambling bill that has yet to be resolved, are directed at closing a $2.2 billion deficit projected for Fiscal Year 2017-18, $1.5 billion of which was rolled over from the recently completed 2016-17 fiscal year.

The proposed taxes include:

  • A severance tax that will be in addition to the state’s existing impact fee paid by unconventional natural gas well drillers, with that fee to remain unchanged. The added severance tax, which is a levy of two-cents-per-thousand-cubic-feet of natural gas (Mcf) extracted for 2017-18, would be applied to the same wells subject to the impact fee and is expected to generate an additional $100 million during the current fiscal year, with that revenue directed into the General Fund;
  • A Gross Receipts Tax (GRT) on natural gas consumers, at 5.7 percent, meaning an additional $5.70 cents for every $100 a household spends on the natural gas they purchase. More than half of the state’s households use natural gas for home heating;
  • Increasing existing GRTs on electricity and telecommunications, from 5.9 percent to 6.5 percent for electricity, and from 5 percent to 6 percent for telecom bills. Combined, the planned GRT changes are estimated to deliver an additional $445.8 million in 2017-18;
  • Attempting to have third-party vendors, who sell items through Internet marketplaces like Amazon and eBay, remit Pennsylvania’s sales tax if they don’t currently do so. That idea could generate another $43.5 million;
  • Another $3 million in additional revenue is to be generated from taxing consumer fireworks (not those used by professional pyro-technicians license by the state) at a new 12 percent rate, which is in addition to the sales tax on such sales;
  • Another $200 million from some type of gaming expansion, but that bill will not be considered this week by the Senate;
  • Borrowing against the state’s expected Tobacco Settlement Fund payments. The planned bond, of up to $1.3 billion with no more than a 30-year repayment period, will have its borrowing costs either deducted from the more than $300 million the state receives each year from tobacco companies as part of the settlement, or from the General Fund; and

The bills above are now headed back to the House for their approval. It is yet to be determined if the House will return prior to their next scheduled Session date of Monday, September 11.

Questions contact Jack Phillips, RCPA Director of Government Affairs.

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For Immediate Release

Delilah Rumburg, Chief Executive Officer of the Pennsylvania Coalition Against Rape and the National Sexual Violence Resource Center, announced that she will retire after 23 years at the helm of the longest-standing anti-sexual assault coalition in the country.

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RCPA, along with three other statewide associations, have joined together by drafting a letter to State Senators urging them to oppose House Bill 59 (HB 59). HB 59 negatively impacts Medicaid eligibility and benefits for consumers, specifically limiting the ability of health and human service providers to offer services to the Commonwealth’s most vulnerable population. Consumers and health and human service providers are concerned that HB 59 is on a fast track to passage.

The bill’s language to limit eligibility and access to Medicaid benefits was inserted during budget negotiations without public debate or hearings. After the bill was amended and voted out of committee, it was sent directly to the House in its entirety for an up or down vote. Ultimately, HB 59 passed the House largely along party lines without any votes from Democrats, and fifteen (15) Republicans voted against it. From a good governance perspective this is simply astounding. On process alone, HB 59 should be rejected; therefore, we urge RCPA members to contact their State Senators and ask them to oppose HB 59.

Questions, contact Jack Phillips.

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