HARRISBURG — Depending on who you ask, Pennsylvania is either on its way to a surplus, or a fiscal cliff.
And depending on who is answering the question, it could decide how the remaining billions in COVID-19 recovery funds from the federal government should be spent.
The state received $7.3 billion as part of President Joe Biden’s COVID-19 stimulus package passed last year. In context, that’s enough money to fund the annual budgets for 17 state agencies, including the Department of Health, Department of Corrections, the 14 state-owned universities, the state House of Representatives and the State Police.
Pennsylvania already has spent or allocated $4.9 billion of its federal funds, according to the state treasurer’s office. These federal funds helped the state put away $2.6 billion into its “rainy day” fund, a separate savings account that has allowed lawmakers to avoid raising taxes during an economic downturn — a fund that Gov. Tom Wolf notes only had $200,000 in it when he took office in January 2015.
Overall, the state has more than $10.7 billion in its main spending account and it is expecting a $2.5 billion revenue surplus. While Democrats see this as a sign they can spend on initiatives, Republicans, like state Treasurer Stacy Garrity, advised that policymakers look further out to 2026, when the state is projected by the Independent Fiscal Office to have a $1.4 billion structural deficit, or that the state will spend more than it generates in revenue.
Now, the fight in Harrisburg over the next three months won’t just be about the 2022-23 budget. Officials will debate how the remaining $2.4 billion in one-time federal dollars gets spent — and when.
“We have to be a little bit careful,” said Ms. Garrity, the state’s top fiscal watchdog. “We’re going to see a fiscal cliff. The fiscal cliff can be small or large, depending on the decisions we make today on some of these spending proposals.”
“The most important thing is we drive these resources as they are intended to be used by Congress,” said Minority Leader Jay Costa, D-Forest Hills. “Clearly we were not asked to hoard these dollars and sit on them.”
Mixed outlooks
Democrats say the state shows it’s in a great financial position to invest in different sectors of the economy hardest hit by the COVID-19 pandemic. Republicans say there’s no rush to get these dollars out the door, urging that the state hold off on spending frivolously in fear of an impending recession or fiscal cliff.
“We’re flush with cash,” Mr. Wolf told the Post-Gazette on Friday. “I think what’s happening in Harrisburg is [lawmakers] are so used to ‘find a penny there, find a dollar there,’ they don’t know what to do with it.”
What’s more: Top officials can’t even agree on how much money will be left in the state General Fund at the end of the year. Ms. Garrity said the state’s funds are “artificially high,” thanks to the federal funds. Excluding the federal funds, the state should really evaluate its General Fund balance at $3.3 billion this fiscal year. In response, Mr. Wolf said Ms. Garrity is wrong, and the state should still have at least $6 billion left over.
Last month, Mr. Wolf proposed a $1.7 billion spending plan to help small businesses, help health care organizations recruit caregivers, support a property tax rebate program and pay for conservation projects. He’s been touring the state, boasting about the plan.
House Republican leaders have called Mr. Wolf’s proposal, as well as other Democratic proposals, a “fiscal fantasy land,” while Democrats have said this is the starting point for negotiations with Republicans.
Republicans, who control the Legislature, haven’t made a formal proposal for the remaining federal dollars. But the conservative lobbying group Commonwealth Foundation recommended the state use the money to pay off the state’s more than $700 million in unemployment compensation debt, increase tax credit scholarships for students to attend private or charter schools and invest in small businesses so they can provide hiring bonuses to workers, according to a report released in September.
To his credit, Ms. Garrity said Mr. Wolf proposed a number of “good programs” in his proposal. But some of it should be used to cover expenditures, so the state can put away at least $1 billion more into its rainy day fund in preparation for the worst.
“I know it’s tempting to say, ‘We have this money, let’s fund this program,’” Ms. Garrity said. “But we know for a fact we have a structural deficit and we especially know this next year is going to be challenging in terms of inflation and what’s going on in the world. I think we need to be cautious.”
Mr. Wolf, however, disagrees: “This is not meant to be saved,” he said. “This is meant to be used to help people make it through a crisis.”
These federal funds were sent to the state as part of the American Rescue Plan Act. It’s one of several massive spending packages passed by Congress since the pandemic began in 2020, with loose requirements to be spent to help states recover from the pandemic or build up infrastructure projects. It can’t be used to replace revenue, but can be used to cover pandemic-related expenditures, so the money can be maneuvered to allow the state to save money elsewhere.
Political urgency?
In total, the U.S. government has committed $4.5 trillion toward COVID relief funding. In addition to the $7.3 billion received by the state government, counties and municipalities received their own pot of $6.15 billion of federal funding based on their population size. County, city and local governments around southwestern Pennsylvania received nearly $1 billion of that money.
Officials have until Dec. 31, 2024 to decide how to spend the remaining one-time federal dollars, and until the end of 2026 to spend them.
Mr. Wolf, however, only has until the end of the year to ensure he has a hand in how that money gets spent.
Add to that the underlying pressures of the 2022 gubernatorial race. If Republicans hold off on spending the money in hopes that Pennsylvanians elect a Republican to the state’s governor’s mansion in November, they’ll get to decide how to spend the money without threat of a veto, Mr. Costa said. Democrats hope to do the same; if they achieve some big win before Mr. Wolf leaves office, they can hope to capitalize on it and sway voters to elect Democrat Attorney General Josh Shapiro as the state’s next governor.
Mr. Wolf said he doesn’t think political motivations will get in the way of the state spending its federal dollars.
“I don’t think anybody wants to say ‘I stood in the way of the family down the street getting some money to help them pay their electric bill or their food bill, or braces for their kids,’” he said. “This is money that has to be spent. The choice is, do you want to do it now? ... We could help families and businesses right now.”
Ms. Garrity said her financial analysis — that the state should be cautious when spending its remaining federal funds — is just a difference in political ideology.
“Politics never even entered my mind,” Ms. Garrity said. “I truly think that with high inflation, the geopolitical things going in the world, it’s prudent to have a strong rainy day fund so the General Assembly can prevent the need for tax increases.”
Gillian McGoldrick: gmcgoldrick@post-gazette.com; Twitter: @gill_mcgoldrick
First Published: March 27, 2022, 10:00 a.m.
Updated: March 27, 2022, 1:32 p.m.
