2021-22 State Budget Proposal

2021-22 State Budget Proposal

Governor Wolf’s Proposed FY 2021-22: What it Means for Pennsylvania Kids and Families

Governor Tom Wolf gave his seventh and next-to-last budget address virtually amid the COVID-19 pandemic on Wednesday, February 4, 2021. In addition to the change in presentation, the governor utilized an unexpected approach to the FY 2021-22 proposal in advancing a bold plan seeking to raise revenues and dramatically increase spending on education. The tone was reminiscent of the governor’s first years in office that brought protracted budget impasses with the legislature over policy disagreements as opposed to more recent years, which have featured a more measured, incremental tenor.

Leaders from both chambers of the Republican majority responded quickly and negatively to the proposal, leading many to believe the proposal is unlikely to gain traction with the General Assembly in the coming months. With the plan being education-focused while offering less emphasis on other areas of the budget such as human services, given the plan to generate revenue from an increase in the Personal Income Tax (PIT), Republican members and some advocates raised issues with either their aversion to raising taxes or that not enough focus was placed on addressing the ongoing pandemic.

The pandemic has also exacerbated Pennsylvania’s ongoing budget deficits, which has been addressed in previous years with accounting maneuvers such as delayed payments and account transfers. Left with few choices and the unpopular option of making cuts, Gov. Wolf’s proposal opts to address the deficit by funding education priorities with a mix of revenue increases, most notably to the PIT – from 3.07% to 4.49% – effective July 1, 2021. The proposed increase in the PIT is paired with an expansion of the special tax forgiveness credit including: an increase to $15,000 for single filers, $30,000 for married filers, and a $10,000 allowance for each dependent. These changes would generate just under $3 billion in revenue; however, critics have labeled the proposal unconstitutional due to the state’s uniformity clause, as well as being billed as the largest tax increase in the state’s history by fiscal conservatives.

The total spending figure for the 2021-22 budget proposal is $37.8 billion. This represents an increase from the FY 2020-21 budget of $3.7 billion, or an 11% increase. The governor’s proposal is one of the largest, if not the largest increases offered in an annual budget proposal. The following sections will cover policy areas of priority to kids and families in the Commonwealth.

Children’s Investments in the Proposed FY 2021-22 Pennsylvania Budget

The FY 2021-22 budget proposal puts forward an historic investment in the Basic Education Funding (BEF) line item with an increase of $1.35 billion – bringing the line item to more than $8.1 billion. About $1.15 billion of the increase will ensure that no school gets less funding than the previous year (even those districts in which enrollment is declining), and $200 million will be allocated to address chronic underfunding in targeted school districts. Gov. Wolf’s proposal is supported by PA Schools Work, in which PPC is a member.

This is a sharp departure from the increases of $100-$200 million for the BEF line going back to the 2015-16 budget and since the enactment of the Basic Education Funding Commission’s Fair Funding Formula, which stated that only newly-allocated funding from that point should run through the formula. Since the formula was adopted in 2016, about 11 percent of funding in the current BEF line is run through it. It’s important to note that the administration’s plan is to distribute the BEF amount of $6.8 billion from prior to that point through the fair funding formula – which has not previously been done.

The policy shift runs counter to the recommendations of the Basic Education Funding Commission from 2015 and was noted by Senate Republican Appropriations Chair Pat Browne, who co-chaired the commission. PPC highly values adequacy and equity in education funding and appreciates the investment the governor has placed in the budget. We will continue to evaluate the proposal and note the reconstitution of a new Basic Education Funding Commission slated for 2022 where we urge both equity and adequacy to be part of the dialogue.

Gov. Wolf’s proposal also calls for an additional $200 million in special education funding. This is also a significant increase from proposals in recent years, which sought increases of $20 million-$50 million. The proposed funding level would put the Commonwealth on a path to getting back to contributing approximately one-third of the cost of funding special education. Over time, the state’s share of funding these costs have diminished to closer to one-quarter, shifting the burden to local school districts. Meanwhile, the cost of providing the services have increased and the number of students receiving them have grown by nearly 11 percent in the past six years.

For the second consecutive year, the governor’s budget proposal includes no increase for career & technical education (CTE), which is disappointing given the administration’s focus on getting people back to work in the wake of the COVID-19 pandemic. Career and technical education centers are the training ground for many essential workers including health care professionals, drivers, auto mechanics, culinary workers and many more. Building on the success in the FY 2018-19 and 2019-20 budgets, where $10 million increases were secured annually for CTE, PPC will continue to work with our partners in PA Schools Work campaign and the General Assembly to restore needed increases in CTE to support frontline workers.

The Wolf administration also laid out several legislative proposals in addition to the revealing its spending priorities. At the head of that agenda is charter reform, similar to what was revealed in the FY 2020-21 budget proposal. The changes would apply standard tuition rates for cyber charters and applying the bi-partisan supported 2014 special education funding formula to charter schools in the same manner in which it is applied to traditional public school districts. If adopted, those changes would save $229 million. Another legislative item would be raising the minimum teacher salary from $18,500 to $45,000. This proposal was also forwarded in 2019-20 and 2020-21 but gained no traction. Finally, Wolf is proposing an expansion of the Redevelopment Assistance Capital Program (RACP) to apply to schools – which are currently not eligible grantees – for lead and asbestos remediation projects. In addition to expanding the eligibility, the administration is proposing an allocation of $1 billion into the RACP as part of its budget proposal.

Pre-K: The proposed budget contains a total increase of $30 million for pre-k education: $25 million for Pre-K Counts and $5 million for the Head Start Supplemental Assistance Program (HSSAP). This proposed increase aligns closely with recent allocations, save for the flat funding of most programs in last year’s version and would allow for an expansion of 3,271 slots for eligible 3- and 4-year olds. PPC, along with our partners in the Early Learning Pennsylvania coalition and Pre-K for PA campaign are supportive of the governor’s plan. These proposed investments come on the heels of the release of the University of North Carolina at Chapel Hill study that shows Kindergarteners who attended a Pre-K Counts program outperformed their peers who did not attend. PPC will be releasing a policymaker-focused follow-up brief based on the study’s findings next month.

Child care: Ahead of the address, on Monday the administration announced a base rate increase initiative for child care providers in the Commonwealth. The initiative will increase base rates for Child Care Works (CCW) providers to the 40th percentile of the market rate based on the region. This is an increase from the current 25 percent reimbursement rate, but still falls short of the federal recommendation for reimbursement rates at the 75th percentile. As noted, this shifts to a regional base rate reimbursement model based on Early Learning Resource Center (ELRC) regions, with an average increase across all regions of $4.59 per day. The increase in base rates will cost an additional $28.8 million in federal funding for the 2020-21 fiscal year and $87.2 million in the 2021-22 fiscal year. It is important to note that this proposal utilizes federal CCDBG funding received prior to the most recent federal stimulus package that passed in December, which provides the state with an additional $302 million in federal funding. That amount is listed to be appropriated in the governor’s proposed budget, yet it provides no detail on what the administration plans to do with this pot of funding. In a budget briefing offered by the Department of Human Services later this week, it was noted more details on the plans for this funding will be released in the coming weeks.

In addition to working with the administration around increasing base rights while also identifying strategies to incentivize quality, PPC with its partners in the Start Strong PA campaign proposed a contracted slots proposal for infants and toddlers. At this time the administration has indicated that proposal will not be part of the plan nor will the additional federal funds be used for it. The campaign remains hopeful there may be other opportunities with additional federal funding for initiatives such as this to be advanced. Beyond that, administration also proposed the Back to Work PA initiative – repurposing in part last year’s Restore PA initiative. The proposed program contains child care elements that builds from the Governor’s Workforce Command Center report that identified child care as barrier to employment – released in January 2020.

Funding for the entire Back to Work PA package – well beyond child care provisions – identified a natural gas extraction tax, which isn’t new and hasn’t been legislatively popular. Specific child care initiatives identified include: expanding CCW subsidies for more job seekers to be able to get back to employment; funding for companies to develop or expand on-site child care facilities; and funding for licensed facilities offering non-traditional care. Specific allocations of funding for these initiatives are not identified. Back to Work PA also broadly elevates the importance of broadband expansion in the state and its impact on health care and education – including on telehealth and telelearning. Minimum wage is an element across the governor’s budget proposal and does impact child care and other areas including child welfare (relative to the pay of workers in these areas often not meeting the floor wage amount): the proposal would increase the minimum wage to $12/hour on July 1, 2021 and increase it gradually to $15/hour. Again – the governor has proposed several times with previous budget addressed but it has been met with little to no legislative support and is suspected to have the same traction this time as well.

Home Visiting: Funding for evidence-based home visiting, which runs through the Community Based Family Center and Nurse-Family Partnership lines was level-funded in the governor’s budget proposal. The Childhood Begins at Home campaign asked for a combined $12.4 million increase in the FY 2021-22 budget. The Nurse-Family Partnership line shows an increase of $84,000 that replaces funding that had been offset in the 2020-21 stopgap budget with temporary Federal Medical Assistance Percentages (FMAP) funds, so despite the small increase there will be no expansion of home visiting services.

Pennsylvania’s Medical Assistance program publicly announced a new requirement that Medicaid managed care organizations (MCO’s) would be required to provide two home visits for all new and high-risk mothers shortly after birth, which went into effect June 1, 2020. The Childhood Begins at Home campaign continues to work with the Office of Medial Assistance (OMAP) and MCOs to leverage evidence-based home visiting programs. The Medical Assistance capitation line item shows a reduction of funds in the budget proposal, however there is no indication that the cut affects the Medicaid home visiting program.

PPC and the Childhood Begins at Home campaign believe flat-funding for evidence-based home visiting in the budget proposal is a disappointing prospect. Gov. Wolf focused heavily on the needs of young families as they begin their journey, as well as the educational needs of young Pennsylvanians, so missing the first steps in that continuum dampens that message. Evidence-based home visiting had been on a roll with three years of consecutive growth from the 2017-18 budget through FY 2019-20, so flat-funding for two consecutive years does not help marginalized families who can use these services more than ever.

Early Intervention: This year’s budget proposal contained an increase of $11 million for the Early Intervention program that provides services to 3- to 5-year old population (located in the Department of Education budget), which would serve an additional 2,000 children. Also included was an increase of just under $11 million for the Early Intervention program that served children from birth to age 3 (found in the Department of Human Services budget).

The proposed budget provides funding to maintain the services and supports in Medicaid and the Children’s Health Insurance Program (CHIP) for eligible children to improve their health and well-being. The proposed budget accounts for an estimated 11% increase in the number of children participating monthly in Medicaid and nearly a 1% increase in the number of children participating monthly in CHIP during 2021-22.

The proposed budget accounts for annual adjustments of the FMAP used in Medicaid and CHIP includes the following:

  • The blended rate for CHIP will decrease from 69.425 percent to 66.795 percent requiring $10.6 million in additional state general funds in 2021-22.
  • The blended rate for Medicaid will increase from 52.21 percent to 52.56 percent reducing the need for state general funds by $111.4 million in 2021-22.
  • Additionally, the proposed budget factors in $2.4 billion in total enhanced FMAP for 2021-22 that would reduce the need for state general funds by the same amount.

The previously noted increase in the minimum wage, while again unlikely to have momentum, is projected to reduce costs in DHS as children transition from MA to CHIP at a higher FMAP. The proposed budget includes eliminating the CHIP Administration line, shifting $1.3 million to the County Administration – Statewide line, which supports the planned transition of determining both CHIP and medical assistance eligibility within one system.

On the Department of Health side of the ledger, federal funding noted in the budget for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) was flat-funded at $278 million, which is used to connect women and children to nutritious food. WIC is a vital component of our prenatal-to-age-three collaborative where we are working with the administration and partners to modernize the system and increase participation. For the past several years, WIC enrollment in the state has been on the decline, which impacts the amount of federal funding the state receives to administer the program. The proposal also contains federal funding for the department’s surveillance of vaccine-preventable diseases and childhood immunization levels, as well as surveillance of childhood blood lead levels in Pennsylvania communities with slight increases included in the federal appropriations for Lead Administration and Operation and MCH Lead Poisoning Prevention and Abatement.

The proposed budget includes an increase of $153 million (13%) for the County Child Welfare line. While this appears to increase child welfare funding, it is unclear how much of an impact the loss of federal funding due to the implementation of the Family First Prevention Services Act (FFPSA) has already been accounted for within that appropriated amount. In addition, the County Child Welfare line annually experiences prior fiscal year roll overs, with an additional budgeting shift occurring in the second half of the 2020-21 stopgap budget, making the face-value of the appropriation difficult to ascertain. According to an analysis by the House Democratic Appropriations Committee, $75 million of the increase is due to maximizing the allowability to roll County Child Welfare fourth quarter bills to the following fiscal year that will not recur in FY 2021-22. An additional $2 million from the increase accounts for the elevation of child welfare workforce wages up to a $12 per hour to meet the governor’s minimum wage proposal. Another $1 million is being used to secure housing and supports to promote stability and reunification. Finally, in addition to the previously noted lack of full detail as to the financial impact of implementing the FFPSA, which the state has indicated they will do as required by October 1, 2021, the budget also does not specify many of the recently-passed provisions contained within the December 2020 bill, Consolidated Appropriations Act of 2021. Specific to the FFPSA, an analysis by the Independent Fiscal Office (IFO) projected a $30 million loss in federal funds as a result of a large reduction on congregate care as a means for placing youth. PPC will continue to gather information as it relates to the FY 2021-22 child welfare budget.  

This budget proposal recalls the early days of the Wolf administration when he put forward daring plans relative to taxes, spending and policy. PPC appreciates the initiative of Gov. Wolf to respond to the trials of this unprecedented time, and from a more holistic perspective, to address the ongoing challenges faced by the Commonwealth with our structural budget deficits.

While the proposal is big, PPC must note it needs to be more inclusive in its breadth: notably in the early stages of the continuum of the prenatal-to-three space, and then again focusing on career and technical education to meet the needs of Pennsylvania’s future workforce.

The reality, however, is that this proposal lands on the doorstep of a Republican-controlled General Assembly that is unwelcoming and responded to Gov. Wolf on the proposal with several points of criticism, including:

  • Arguing a pandemic is the wrong time to increase the PIT and that it again targets small business that were hit hard during the lockdowns of the public health emergency.
  • Noting the discrepancy between the Independent Fiscal Office (IFO) and Department of Revenue on whether the budget deficit is could range anywhere from $2.5 billion to $3.5 billion, and commenting that depending on further action in Washington on a stimulus package, jumping to a tax increase at this time is ill-advised.
  • Highlighting the range of perceived shortcomings of the administration in managing the pandemic – including slow vaccine distribution from the Department of Health, confusing guidance from the Department of Education on students returning to schools, an overwhelmed unemployment compensation system at the Department of Labor and Industry, governmental missteps at the Department of State regarding a bill with the statute of limitations.

 

President Pro Tempore Jake Corman remarked, “Our goal is not to have any new revenues…We want to work a budget that way and that will be our first priority.”

In the House, Majority Leader Kerry Benninghoff called the proposal a “behemoth” and pivoted to note the House is soon expected to take up SB 109 to provide COVID relief funds of $145 million to establish a Hospitality Industry Recovery Program and drive out nearly $200 million of federal relief dollars.

This reaction points toward a continued, deep chasm between administration and the legislature that has been permeating since the start of the pandemic and through the polarizing 2020 election cycle – in many ways endemic of the national political tone.

In the coming weeks, PPC will keep you informed during the budget hearing process in which the department secretaries will defend this budget and the governor’s priorities. First up is the House Appropriations Committee, slated to begin their hearings in the next few weeks. As is the case each year, the budget is statutorily required to pass by June 30.

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