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

There are more than $1.8 billion in increased investments for K-12 education in the proposal, including an increase of $1.25 billion in Basic Education Funding and $200 million in Special Education Funding. Additionally, the budget includes $300 million for the second consecutive year to support the Level-Up initiative, which is supplemental support for the 100 lowest funded school districts in the commonwealth.

Approximately $6 million is earmarked for the Career and Technical Education (CTE) subsidy line. PPC is pleased to see a proposed increase for CTE as the line item has been flat-funded for two years at its 2019-20 funding level and received minimal federal support from stimulus packages. While we are relieved an increase is included, the amount is significantly lower than the $25 million needed to reinvigorate CTE. PPC will be collaborating with our stakeholder partners and supportive legislators in the House and Senate to advocate for this additional funding in the CTE subsidy line during the budget cycle. There is also no support for equipment grants, which programs rely on to update or purchase necessary supplies. There is an additional investment of $20 million for the PA Smart Initiative, which supports several workforce programs launched by Gov. Wolf in 2019.  

The governor recommended significant policy reforms in the Charter School Law, which would provide an estimated savings of $373 million annually that can be reinvested into education initiatives, including a proposal to increase the minimum teacher salary to $45,000 annually – something Gov. Wolf has pushed for several years. One proposed charter reform is to set a standard statewide cyber charter rate of $9,800 per student, which projects a savings of $199 million annually. Another is to apply the tiered Special Education Funding formula to all charters to better align Special Education Funding with actual costs of providing services to special education students. This change will net $174 million in savings annually. Charter reform elements have also been proposed previously by the administration but were quickly met with opposition from the legislature.

The proposal contains a total increase of $70 million for pre-k education: $60 million for Pre-K Counts and $10 million for the Head Start Supplemental Assistance Program (HSSAP). This proposed increase would allow for an expansion of 2,308 slots for eligible 3- and 4-year-olds participating in the Pre-K Counts Program. The funding will also support an increase in reimbursement rates for high-quality pre-k providers to $10,000 for full-day slots and $5,000 for half-day slots.

PPC and our partners in the Pre-K for PA campaign support the governor's plan. A recent study of Pennsylvania's Pre-K Counts Program by the University of North Carolina at Chapel Hill shows kindergarteners who attended a Pre-K Counts program outperformed their peers who did not participate. Learn more about the positive impacts of the Pre-K Counts program.

Child Care
The governor's proposed budget does not include any increases in state funds for child care, with both the Child Care Services and Child Care Assistance lines level-funded for the third year in a row.

Last year, the administration announced plans to use federal funding Pennsylvania received through the American Rescue Plan Act to increase subsidy rates for Child Care Works providers, reduce parent co-pays for families participating in the Child Care Works subsidy program and incentivize providers offering non-tradition hours of care (defined as child care available before 6 a.m. or after 6 p.m.). The total cost of the initiative was $352.4 million. The governor's budget proposal allocated $128 million of the $352.4 million. Specifically, $77.7 million was allocated in federal funding to sustain the subsidy rate for Child Care Works providers at 60%. For reference, the federal government recommends the 75th percentile as an adequate reimbursement rate for providers. Before using federal stimulus dollars to increase reimbursement rates, Pennsylvania was in the 25th percentile, and previously the administration moved rates up to the 40th percentile with federal funding. Additionally, it is essential to note that in utilizing stimulus dollars that are one-time and will expire, the base rate increase will be reduced back to the 40th percentile by 2024 unless backfilled by either permanent federal funds by the state or state-specific dollars. The co-payment reduction initiative utilizes $44.3 of the federal funds, while the non-traditional hours of care piece takes up $6.1 million of the federal funding.

In addition, the proposed budget includes $30 million in increased state funding to provide access to and affordability of high-quality child care for commonwealth employees identified in the Department of General Services budget. In total, the governor's proposal includes an increase in the Child Care Development Block Grant federal funding of $157.3 million and an increase in the TANF Child Care Assistance federal funding line of $139.9 million.

PPC and our partners in Start Strong PA find the proposed investments inadequate to address the crisis impacting the child care sector. Due to the demands the industry is experiencing during the ongoing pandemic, investments are needed to stabilize child care across the state and provide working families opportunities to enroll their children in high-quality care.

Early Intervention
The proposed budget includes an increase of $11.5 million for the Early Intervention Part C (infants and toddlers) program, with $1.2 million included to add a new eligible category for tracking children when a mother has a positive screen for maternal depression or anxiety (Early Intervention Part C is in the Department of Human Services budget). The Early Intervention Part B (age-three-to-five) program is level-funded in the governor's proposal (Early Intervention Part B is in the Department of Education budget).   

Home Visiting
The proposed budget contains a $15 million state increase and $8 million in federal funds for evidence-based home visiting to serve an additional 3,800 pregnant women, children and families. The proposal also contains a slight increase for the Nurse-Family Partnership line to adjust for FMAP changes and to replace federal funding received in 2021-22 for COVID-19 response. Following two years of level funding, PPC and the Childhood Begins at Home Campaign are pleased to see Gov. Wolf’s proposed investment to increase service levels beyond the 5% of eligible Pennsylvania families currently served. We will also be encouraging the legislature to include the $15 million proposed increase in the Community-Based Family Center line as well as to take additional steps by increasing Nurse-Family Partnership’s home visiting budget line by $2.4 million to serve an additional 400 families across the commonwealth.

The governor's proposed budget contains a total increase of $39.86 million for the Children's Health Insurance Program (CHIP). The two most significant components of the increase are related to the COVID-19 Public Health Emergency (PHE): $25 million is proposed to reflect the impact of Medicaid eligibility redetermination at the end of the Public Health Emergency (the date of which is not yet set) and $14.9 million is baked in to replace federal funding received in 2021-22 for COVID-19 response. Also included is funding to expand the postpartum coverage period in Medicaid from 60 days to 12 months ($8 million in the Medicaid capitation line and a menial amount in the CHIP program as required federally by CMS). Last year, the Department of Human Services announced plans to opt-in to the extension of postpartum coverage beginning April 1, 2022, which became available to states in the American Rescue Plan Act. These investments will help address the health disparities and maternal health crisis impacting Pennsylvania women and birthing individuals championed by PPC and our partners in the Thriving PA campaign.

The budget also accounts for the end of the PHE and its impact on the Medicaid program, assuming the PHE will end on June 30, 2022, and along with it, additional federal funding that was provided to cover individuals as part of the "disenrollment freeze" or offering continuous coverage. That fiscal impact is a cost to the state of $2.2 billion. However, the budget also assumes certain individuals no longer eligible for Medicaid will be removed from the rolls, saving the state $446 million. It is important to note the June 30th date has been arbitrarily selected at this time and there is no certainty around a timeframe for when the PHE will end, other than the Biden Administration providing a 60-day notice ahead of when they will end the declaration.

In the Department of Health, federal funding noted in the budget for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) was flat-funded at $278 million. This funding connects women and children to nutritious food. WIC is a vital component of our Thriving PA campaign, where PPC and our partners are working with the administration to modernize the system and increase participation. For the past several years, WIC enrollment in the state has been declining, which impacts the amount of federal funding the state receives to administer the program.

The child welfare budget shows a 14% increase with an additional $181 million in state investments. Approximately $149 million will support county child welfare agencies in their needs-based budgets, which includes supporting investigations, in-home and placement services. Approximately $2.1 million is earmarked to adjust for the impact of the governor's proposal to increase the minimum wage, which has been advanced in the past but met with legislative opposition. Other support is included to replace federal funding that was provided due to COVID response and to account for roll-over payments from the prior fiscal year. Additionally, $291,000 will be utilized to create four positions to build a child welfare crisis response team. The team will support county child welfare agencies struggling with staff shortages and challenging and complex cases.

Specific to the Department of Human Services, the budget proposes an increase of $1.4 million for additional staff in several program areas to support increased regulatory, licensing, budgetary, and administrative workloads. However, it is unclear if this would be allocated to positions within the Office of Children, Youth and Families, which has been vocal in its need for additional resources and current limited capacity due to being understaffed. 

The respective Senate and House Appropriations Committees will spend the next few weeks holding hearings with various departments on aspects of the governor's budget proposal. The Department of Education will appear before the House Appropriations Committee on March 7th and the Senate Appropriations Committee on March 10th. The Department of Human Services will appear before the Senate Appropriations Committee on March 8th and the House Appropriations Committee on March 10th while the Department of Health takes their turn in front of the House Committee on March 3rd and the Senate Committee on March 10th

Gov. Wolf's proposed $43.7 billion budget represents a 16.6% increase over the current year's spending of $37.5, due mainly to federal dollars that had been increased – or enhanced – through the pandemic now no longer available. In looking to allocate approximately $2 billion of remaining federal stimulus funds from the American Rescue plan in the budget, Gov. Wolf also chose to leave the state's own Rainy Day Fund untouched.

On the policy side, from a fiscal perspective, the Wolf Administration again proposed an increase in the state's minimum wage of $12 per hour from $7.25 per hour. That wage would increase by $0.50 per hour for six years until it reaches $15 per hour. However, this is a non-starter in the General Assembly and likely will see no momentum. The proposal also includes a cut of the corporate net income tax from 9.99% to 7.99% immediately in 2022-23, with a phase-down to 5.99% over the next couple of years. It is yet to be determined what, if any, changes will be made in broader fiscal policy this year, particularly with it being a highly contested election year.

Both the governor's federal stimulus spending plan and proposed budget are considered non-starters by Republican leaders in the House and Senate, who have announced their intentions to save federal relief funds to cushion the commonwealth's general fund for years to come. As we come out of the appropriations hearing phase and move into session weeks in March and April, we may start to get a sense of where Republican leaders place their budget priorities, but with a looming May primary election date and several members vying for higher elected office – whether it is running for governor, lieutenant governor, or Congress – we may not see any real momentum until after the primary.