Feds reject Pa.’s plan to spend up to $300M in stimulus money for school property tax relief

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HARRISBURG — For more than a decade, state lawmakers have sent yearly payments to Pennsylvania’s school districts so they can lower residents' property tax bills.

These payments are funded by gambling revenue, which has taken a major hit this year as the coronavirus forced casinos to shut down for months before reopening under new restrictions.

Gov. Tom Wolf’s administration and Republicans who control the legislature thought they had a solution to make up for the shortfall: State lawmakers during the spring approved a plan to use as much as $300 million in federal coronavirus dollars toward the promised $621 million in relief.

But in mid-September, the federal government rejected Pennsylvania’s plan, Spotlight PA has learned. School districts are now waiting for the last $200 million, which was due in October, leaving them on the hook at a time when many are already struggling with large local revenue losses and cost increases for items such as cyber charter school tuition.

“That is the challenge that folks are dealing with right now,” said Hannah Barrick, assistant executive director for the Pennsylvania Association of School Business Officials.

The amount of the tax break provided to each homeowner varies, but in the majority of school districts, each homeowner pays $100 to $400 less in school property taxes each year. (In Philadelphia, the money is used for wage tax relief.)

School districts already passed budgets earlier this year and approved tax rates based on what they expected to receive from the state. The amount still owed varies, according to documents provided by the Wolf administration, including $27.7 million to Philadelphia treasurer’s office, $5 million to Pittsburgh Public Schools, $3.1 million to the Allentown School District, and $2 million to Central Bucks School District.

“There’s not a lot that school districts can do at this point to adjust should those funds not come,” said Barrick.

Barrick said her organization is hopeful that lawmakers will straighten out the issue soon as they face a Nov. 30 deadline to pass a budget for the remaining seven months of the fiscal year.

The legislature must also agree how to spend about $1.3 billion in remaining CARES Act money, which currently can be used only for costs related to the public health emergency — not to fill revenue shortfalls. If they fail, state law says that money will go to the 60 least-populated counties.

In May, as the state’s Independent Fiscal Office estimated that the state would lose nearly $5 billion in revenue through June 2021, lawmakers took the unusual step of passing a stopgap budget.

» READ MORE: Facing nearly $5 billion shortfall, Pa. lawmakers plan to pass short-term budget

The nearly $25.8 billion spending plan fully funded most education spending so schools were able to reopen this fall. But it funded many other departments for only five months, leaving holes for Medicaid programs, prisons, state police, and a host of other services.

Republican leaders on Thursday noted that state revenue collections and projections are better than expected, and Sen. Pat Browne (R., Lehigh), chair of the Senate Appropriations Committee, credited that to “people in our communities that continue to work, notwithstanding very challenging times.”

Still, Democrats on the House Appropriations Committee are estimating a $2.9 billion budget gap for the rest of the fiscal year — although that is based on a revenue estimate that assumes lawmakers in Washington will send more stimulus money, which is uncertain.

Making up the property tax relief shortfall has been part of discussions between the Wolf administration and the legislature, said Neal Lesher, a spokesperson for House Appropriations Committee Chair Stan Saylor (R., York).

“Our caucus remains committed to fully funding public education,” Lesher said in an email.

Lyndsay Kensinger, a spokesperson for Wolf, said the administration was made aware through a phone call that “property tax relief was not a lawful use of CARES funding” by the federal government in mid-September.

“[T]he administration is working with the General Assembly to complete a balanced budget by the end of November,” Kensinger said in an email.

But without federal aid, filling the gap will be an accounting feat, possibly requiring lawmakers to pull from special funds dedicated to such issues as the environment and roads. Casino slots revenue in the fiscal year that ended in June fell $231.5 million, or 28%, compared with the previous fiscal year, according to a Spotlight PA analysis of state Gaming Control Board reports.

For months, state leaders across the country have hoped federal lawmakers would pass another stimulus bill or allow CARES Act funds to replace lost revenue, but that seems unlikely to happen.

And time is running out. The federal government says CARES Act money already sent to states and other government agencies can be used only for costs “incurred” by Dec. 30. The language has created some confusion among county leaders as to whether all of that money needs to be spent by then.

When lawmakers passed a partial state budget in May, they agreed that any money not spent by Dec. 1 would go to counties based on a formula lawmakers used earlier this year to distribute $625 million in CARES Act relief.

That formula left out the seven most populous counties — Philadelphia, Allegheny, Montgomery, Bucks, Delaware, Lancaster, and Chester — because they had already received $1 billion in direct federal aid.

House and Senate Republicans won’t say what they plan to do with the remaining money, but key Republicans expect the legislature will pass a supplemental budget this week.

State Rep. Matt Bradford, a Montgomery County lawmaker and the ranking Democrat on the House Appropriations Committee, said he’s concerned that if the legislature fails to act, those seven counties — home to about 5.8 million people — will be cut out of needed aid.

“Many of us are hoping that that money will be used to help our restaurants, our small businesses, our main streets,” Bradford said.

County leaders, too, are worried about the clock running out. Should lawmakers fail to act, Lisa Schaefer, executive director of the County Commissioners Association of Pennsylvania, said the 60 counties won’t have much time to spend money they receive.

“If the intent is for any or all of that money to come back to counties, then we would prefer that decision be made sooner rather than later,” Schaefer said.

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