With Pennsylvania three weeks into fiscal 2016 without a budget approved, municipal analysts say the content of any spending plan is more important than its timeliness.
"To date the market has not been overly concerned about the delay," said Paul Mansour, managing director of Hartford, Conn., investment firm Conning. "That said, the gap is large in terms of money and political philosophy."
Democratic Gov. Tom Wolf and the Republican-dominated legislature differ over how to fund the $30 billion budget. Wolf wants to raise the income and sales taxes and impose a severance tax on Marcellus shale natural gas drilling. The Republican-crafted budget, which Wolf vetoed late last month, vetoed June 30, raised no taxes.
Wolf also vetoed bills to privatize the state-run liquor stores and to move all new state hires from a conventional defined-benefit pension plan to a 401(k)-style defined contribution plan.
Pennsylvania is operating under the glare of bond rating agencies. Moody's Investors Service, Standard & Poor's and Fitch Ratings last year downgraded the commonwealth's general obligation bonds, citing budget imbalance and the combined $53 billion unfunded liability of its two state-run pension plans.
Fitch Ratings and Standard & Poor's rate Pennsylvania GOs AA-minus. Moody's Investors Service assigns an Aa3 rating.
"What is worrisome is that a budget compromise, whenever it comes, could come at the cost of credit quality," said Mansour, who called on Pennsylvania to rebuild its reserves and put its unfunded pension plans on a sounder footing. "Anything less would result in further credit deterioration," he added.
Tom Kozlik, a managing director at PNC Bank, said the details of the final agreement will be crucial. "I am particularly interested to see how pension funding and school district aid is treated," he said.
Rep. Dave Hickernell and Sen. Ryan Aument, both Republican lawmakers from Lancaster County, have introduced legislation that would guarantee the funding of all Pennsylvania schools at the previous fiscal year's amount if a new appropriation is not enacted by Aug. 15 of a given year.
Hickernell cited the need for this legislation based on his experience involving the protracted education funding impasse that delayed finalization of the 2003-04 state budget until late December and resulted in the state missing two scheduled subsidy payments to the then 501 school districts in the commonwealth.
Some school districts said at the time they would remain closed after the holiday break, promoting lawmakers to approve tax increases on income and cigarettes.
Hickernell's and Aument's legislation would establish the Emergency Basic Education Subsidy Fund, which would be a separate fund in the state treasury.
The final budget under Republican Gov. Tom Corbett was a few days late last year, and the spending plan ran late during all eight years under Democratic Gov. Ed Rendell from 2003 to 2010.
