How Pa.’s budget impasse could impact public schools, local governments, and nonprofits that rely on state funding

HARRISBURG — School districts, local governments, and nonprofit organizations that rely on state funding are considering their next steps as Pennsylvania is still without a budget and lawmakers don’t plan to return to Harrisburg until September.

While a short delay is unlikely to have a significant impact, an extended impasse could result in delayed or limited payments and force them to take out loans or spend down their reserves.

“We are urging the state to hopefully finalize that budget process sooner rather than later,” said Lisa Schaffer, executive director of the County Commissioners Association of Pennsylvania. “We don’t want to find ourselves in that situation because ultimately it impacts the people of Pennsylvania more than anything.”

» READ MORE: What you need to know about the Pa. budget impasse

Both the state House and Senate passed spending plans shortly after the June 30 deadline. But they haven’t passed accompanying legislation or completed other procedural steps to get the budget to Gov. Josh Shapiro’s desk because of a disagreement over funding for school vouchers.

That means that schools, nonprofits, and other groups reliant on state funding can’t yet get money for the fiscal year that began July 1. This is the potential impact.

Without a budget in place, nonprofits, county governments, and school districts may have to rely on their own savings or take out loans, which would require paying back interest.

Nonprofit organizations are often the first to feel the impact of a budget impasse because of how they are funded. The state directly pays counties, which then give money to nonprofits that provide mental health services, drug and alcohol treatment programs, and support for people with disabilities. Without a new state spending plan, those programs could struggle to operate and provide services.

“We are already at a point where our need is much greater than our ability to serve,” Schaffer said. “You look at the mental health side in particular, we know there is already a long wait for providers, we know they are having trouble getting workers.”

School districts in the commonwealth also rely on state money, and checks are typically issued in August. Without a signed spending plan, districts will not receive that funding.

Megan Orehek, the senior director of marketing and communications for the Pennsylvania School Boards Association, said a budget impasse is a prime example of why public schools maintain budget reserves. But lower-income districts often lack significant reserves and could be at a severe disadvantage, she said.

Despite the lack of state funding, districts still have to run their day-to-day operations.

“A drawn-out budget impasse also has the potential to present cash-flow issues for school districts,” Orehek wrote in an emailed statement. “As state subsidies are not flowing in, school districts still need to find money to pay salaries, utilities, and other mandated costs.”

Orehek said the impact on school districts would vary, depending on how much money each district has set aside in reserves. Based on the most recent data from the Pennsylvania Department of Education, school districts across the state had a total of $2.6 billion in unassigned fund balance in the 2021-22 school year, which would cover only roughly one month of operating expenses.

This isn’t the first time the state has been at an impasse. In 2015, a budget impasse lasted nine months into the fiscal year, after then-Gov. Tom Wolf, a Democrat, vetoed a spending plan and couldn’t reach an agreement with the Republican-controlled legislature.

That year, lawmakers didn’t reach a deal until March 2016, and the delay caused short-term closure of pre-K programs and domestic violence shelters.

County governments and programs that relied on funding to operate started to feel the impact of the 2015 impasse as early as late July. Human service providers had to delay payments, reduce hours, and take out loans.

Nonprofit organizations that had to pay interest on loans also claimed that their credit ratings were damaged. Interest was not paid back by the state even after Wolf signed

Counties aren’t well prepared for another major impasse this year because the funding they’ve received from the state has been flat since 2015, said Schaffer, of the county commissioners association.

“We have had to stretch our dollars further and further, we are under resourced and under funded,” Schaffer said. “Nobody wants to start screaming that the sky is falling, given that we’re just in mid-July but I think given that experience of 2015 in our rearview mirror, we are very much aware of the types of impact, and when the impacts do start to hit I think they will hit harder and faster.”

State Rep. Seth Grove (R., York) said he is hoping the impasse isn’t a repeat of 2015, but he is preparing for the worst. He pointed to the lack of communication between Senate Republicans and House Democrats as the reason for the delay.

“If you have a late budget that’s finished up a couple weeks into July, no harm no foul, everything flows appropriately,” Grove said. “The issue is when it extends beyond July, August, September, there’s payments that do need to go out so as we speak right now I haven’t heard any discussions between the Senate GOP, House Democrats and [Gov. Josh Shapiro] so I think you could see this flow into September very easily.”

Samuel O’Neal is an intern with the Pennsylvania Legislative Correspondents’ Association.