Pennsylvania neared the end of its budget stalemate Wednesday, only to see momentum halted by opposition in the House of Representatives to proposed pension system changes and new taxes just hours before Christmas Eve.
Pennsylvania House Majority Leader Dave Reed, R-White Township, told reporters in the early afternoon an acceptable tax package is needed before a budget is sent to Gov. Tom Wolf to sign. Reed said the House had adjourned for the day, but members are subject to a six-hour callback should progress be made. The House had agreed on Tuesday by a narrow 100-97 vote to replace its 11-month, $28.1 billion spending proposal with a $30.8 billion package already approved by the State Senate and supported by Wolf.
"If that tax package cannot come to fruition then it's time for us all to admit we need to take things off the table," said Reed. "We can take pensions off the table. We can take [liquor store privatization] off the table. I certainly think we should take an income tax and a sales tax increase of the table and pass a budget that's realistic."
State Senate President Joe Scarnati, R-Jefferson, told reporters after a morning meeting with the House GOP leadership that raising taxes will not be approved without pension reform. A pension bill was voted down in the House this past Saturday that would have moved future state government and school employees into a hybrid system combining defined benefit and defined contribution plans.
"We have been very firm that there will be no new revenue unless there is a pension bill sent to the governor and signed," Scarnati said to reporters outside State Senate chambers.
“It seems that the Republican legislature is intent on continuing the Harrisburg status quo and getting out of town to go on vacation instead of continuing the hard work to move Pennsylvania forward,” Wolf said in a statement.
The budget impasse entered its 176th day Wednesday breaking a record set in 2003 when Ed Rendell was governor. Illinois is only other state with an unsigned budget, but lawmakers there did enact a stopgap measure to keep K-12 school funds flowing.
Villanova University School of Business professor David Fiorenza said Pennsylvania's struggles passing a 2016 budget could have a continued credit impact on the state. All three major credit rating agencies downgraded Pennsylvania's general obligation bonds this year citing budget imbalance and pension liability. Moody's Investors Service rates the commonwealth at Aa3 with a negative outlook while Fitch Ratings and Standard & Poor's rate the Keystone State AA-minus with stable outlooks.
"My experience through the years with various rating agencies shows the need for a municipality, or the Commonwealth in this case, to show leadership by passing a budget in a timely manner," said Fiorenza. "This has not happened and I would not be surprised to see another rating adjustment in early 2016. If a lower rating adjustment does not occur, a message is sent that approving a budget six months after the due date is not important to the citizens of the state."
Wells Fargo Securities managing director Natalie Cohen noted in a Dec. 18 recent report that reaching a budget agreement by January was "critical" due to uncertainty with some public schools and universities in the state. Philadelphia Superintendent William Hite said last week his district might have to close its schools on Jan. 29 absent a state budget.
"Any loss of confidence on the part of the student (and parents) could have longer-term consequences for such higher educational institutions," said Cohen in her commentary.
Hartford, Conn.-based Conning, which annually ranks states by economic viability, is bearish on Pennsylvania in the near future due to "high legacy costs" and an economy that has been slow to rebound from the Great Recession of 2008.
"We rank [Pennsylvania] higher than New Jersey but not much better," said Paul Mansour, managing director at Conning. "Economic growth alone is not sufficient to close Pennsylvania's structural budget deficit."
