ALLENTOWN, Pa. — Six weeks into a state budget impasse, Lehigh County has been left holding the bag on $12.5 million in expenses that the state would have reimbursed, the county's chief fiscal officer said Wednesday.
If the divide between the Republican-controlled Senate and the Democrat-controlled House continues in Harrisburg through September, the county will be forced to consider taking out a loan to pay its bills, county CFO Tim Reeves told commissioners.
"We have to almost plan for the worst, right?" Reeves said. "We have to plan that this is going to continue on.”
Though Pennsylvania’s constitution requires state legislators to pass a new budget by June 30, lawmakers remain $3 billion apart in their spending proposals for the current fiscal year.
“That sometimes doesn't seem fair, that the counties are put into this position again on state-mandated programs."Tim Reeves, Lehigh County’s chief fiscal officer
The Republican-controlled Senate and Democrat-controlled House have approved competing proposals while rejecting the other chamber's plan.
As a result, state agencies can't reimburse county governments for programs they administer, including drug and alcohol treatment and children and youth services, which rely on that funding to maintain basic operations.
Each week, the county spends more than $2 million on services its expects the state to cover.
School districts and transit authorities are in similar straits; SEPTA has warned it will need to slash routes and services if it doesn't get new funding Thursday.
In many cases, counties pass along the state funding to nonprofits that provide services to residents. If the county can't afford to pay the nonprofits itself, the organizations also will be affected.
“That sometimes doesn't seem fair, that the counties are put into this position again on state-mandated programs,” Reeves said.
Contingency fund could run out
Governments are supposed to maintain stabilization funds throughout the year to preserve their liquidity when money get tight — usually shortly before property tax returns come in — and if the state is slow to reimburse mandated expenses.
But the funds are not intended to finance county operations indefinitely.
If a state budget isn't in place by the end of September, the county will have burned through $22 million of its $25 million reserve, Reeves said.
At the current rate, the state would owe Lehigh County $50 million by the end of 2025, he said.
"I wonder what some other counties are struggling with. We can continue to pay for our services, but there must be some counties that cannot."Lehigh County Chief Fiscal Officer Tim Reeves
If the impasse reaches late September, the county will need to consider borrowing money to continue providing state mandated services, he said.
If push came to shove, the county might be able to push that date back a few weeks by dragging its feet with some of its bills, he said.
Reeves and commissioners Chairman Geoff Brace, an aid to state Rep. Michael Schlossberg, the Democratic majority whip, said the loan would be needed despite sound fiscal practices by the county.
The $25 million stabilization fund meets best practices established for counties the size of Lehigh. Northampton County maintains a similarly sized fund.
"I wonder what some other counties are struggling with," Reeves said. "We can continue to pay for our services, but there must be some counties that cannot."
To further stretch contingency funds, if the budget impasse drags on through fall and into winter, Lehigh County officials could temporarily cut spending to free up cash or take out a short-term loan.
It helps that the county collected property taxes earlier in the year, so it has a bit of a financial cushion to work with, Reeves said.
'We are so far apart'
While it's rare for state budget impasses to last into autumn or later, there is precedent.
The 2015-16 budget didn't become law until March 2016 after then-Gov. Tom Wolf and Republican lawmakers clashed over a proposed excise tax on natural gas and education funding.
Local governments across Pennsylvania, including the Allentown School District, were forced to take out loans that left taxpayers on the hook for accrued interest.
Lehigh County avoided borrowing money then, but circumstances are different now, Reeves told LehighValleyNews.com.
The county didn't have significant debt or pension payments due in 2015, but that will be the case this year, he said.
“I’m here tonight just to explain to you I'm not sure how quickly this gets resolved. I think we're very far apart on where we need to be on a lot of issues.”State Sen. Jarrett Coleman, R-Bucks/Lehigh
State Sen. Jarrett Coleman, R-Bucks/Lehigh, attended the meeting and told commissioners during public comment that he was glad to see them preparing contingency plans.
“I’m here tonight just to explain to you I'm not sure how quickly this gets resolved,” Coleman said. “I think we're very far apart on where we need to be on a lot of issues.”
"We are so far apart," he said. "While in the media the governor likes to say we are so close, I don’t think that’s accurate. I think we’re very far apart on some of the issues."
'Emergency circuit breakers'
On Tuesday, the Senate Republicans passed a $47.6 billion budget plan that would maintain state spending levels while shifting more resources to cash strapped transit authorities.
Pennsylvania Gov. Josh Shapiro and House Democrats favor a $50.6 billion package that would commit more resources to basic education and collect new revenue by legalizing marijuana and regulating skill games.
Reeves and Commissioner Ron Beitler bemoaned the lack of guardrails in place for counties when state lawmakers fail to come to an agreement.
Reeves noted that the state is withholding reimbursements incurred in June, which should have been covered by the 2024-25 budget.
Beitler said budget impasses are common enough that "emergency circuit breakers" ought to be in place to prevent local governments from collapsing.
Local taxes cover only about 21% of county government operations, with most of the rest coming from state reimbursements and grants.
"What can they do to build in some of those fail safes?" Beitler wondered aloud.
