PHILADELPHIA - Pennsylvania Auditor General Eugene DePasquale expects to complete a report soon on the effect of a prolonged state budget impasse on schools districts and social service agencies.
They already feel the pinch of a nearly three-month dispute between Gov. Tom Wolf and the legislature over the fiscal 2016 spending plan. Wolf vetoed the $30 billion budget in late June and lawmakers failed to override it.
"In two weeks we expect our first installment on what would happen if the budget stalemate is prolonged," DePasquale said in an interview at the Union League Club of Philadelphia, where The Bond Buyer hosted its Mid-Atlantic Conference.
DePasquale's staff is three weeks into an audit of financial fallout from missed school funding payments. Some districts and social-service agencies have been drawing on lines of credit, which involve borrowing costs.
Echoing comments by bond-rating agencies, DePasquale said short-term, the budget content is more important than timeliness.
"The capital markets, people like Moody's, have stressed that's what in it is more important than an on-time false budget," he said.
School funding, revenue sources and pension benefits are among the sticking points. All three major bond rating agencies last year lowered Pennsylvania's general obligation bonds, citing budget imbalance and an unfunded pension liability estimated at $53 billion.
Pennsylvania has been late with nine of its last 13 budgets. In 2003, the stalemate lasted through December, before some school districts said they would not reopen after the holidays.
Should 2003 repeat itself, "anything is possible," said DePasquale, a former Pittsburgh-area state representative in his second year as auditor.
Much of DePasquale's work has focused on state and local pension underfunding.
On Monday, he said despite the best efforts of city leaders, the funding levels of the Philadelphia Municipal Pension Fund - the commonwealth's largest municipal employee pension plan - fell deeper into severely distressed levels.
His staff audit found that the funding level dropped to 45.8% in 2014, down from 47.4%. According to DePasquale, Philadelphia's municipal pensions have not surpassed 50% despite a previous $1.29 billion bond issue, creating a new hybrid plan, increasing membership contributions, dedicating a tax to annual pension payments and putting more money into annual pension payments than the state requires.
DePasquale also revealed that errors in state reimbursements owed to the city for certain costs of living adjustments resulted in the state owing the city an additional net $660,694 to the city.
In addition, DePasquale has been working with officials in Scranton to remedy chronic underfunding that he said could bankrupt the 77,000-population city in two years. He also reported findings of a double-payout fiasco to the State Police and to the FBI.
DePasquale urged lawmakers to enact recommendations of his municipal pension task force. They include increasing penalties for cities that do not pay their full minimum municipal obligation; shifting management responsibility for underfunded plans to a shared investment manager; and possibly creating a statewide defined benefit structure for all new hires in underfunded plans.
