DV Journal

Gov. Josh Shapiro may soon discover that, as President Harry Truman said, “the buck stops here.”

A new poll from the Commonwealth Foundation and Arc Insights found voters will hold Gov. Josh Shapiro responsible for the state budget impasse.

Fifty-five percent of voters said it is up to Shapiro to get the budget finalized, while just 14 percent say that is the job of Republicans in the legislature.

More than 9 in 10 (93 percent) of Pennsylvanians think it is important that elected officials reach a bipartisan agreement.

A solid majority of voters (57 percent) also say they want Shapiro to continue supporting scholarships for children attending the state’s worst-performing schools. Among Black voters, that number is 76 percent.

Shapiro had promised to support a voucher program both while campaigning and in hammering out a budget deal with state Senate Republicans, only to reverse his position under pressure from House Democrats and teachers unions, leading to the current budget stalemate.

The poll found 65 percent of voters believe Shapiro should honor his agreement, and more than 70 percent believe scholarships for kids to attend better schools should be expanded.

And 54 percent oppose cuts in funding to cyber charter schools.

For a majority of parents, this is a personal issue, with 56 percent saying that if finances were no concern, they would choose to send their kids to schools other than the public school to which they are assigned.

“Pennsylvanians are not only looking for Gov. Shapiro to return to the negotiating table, but they are also expecting him to take responsibility and step up as a leader to finalize a state budget that includes keeping his promise to help kids trapped in failing and unsafe schools,” said Commonwealth Foundation’s Senior Vice President Erik Telford.

After reversing his support for the PASS scholarship program negotiated with the state Senate, Shapiro used a July 6 press conference to shift the blame to the legislature. “It’s now the responsibility of the House and Senate to find a way to work together and iron out those details.”

“It is not too late for Gov. Shapiro to do the right thing and restore a vital lifeline to parents and children while rebuilding his credibility and proving he is a trustworthy leader. State lawmakers should listen to their voters and finish the job they were elected to do,” Telford said.

The poll of 600 likely voters was conducted July 14-16, 2023, and has a margin of error of +/- 4 percent.

Shapiro’s office did not immediately respond when asked to comment.

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Gov. Josh Shapiro plans to allow the House to pass a $45.5 million budget without the school choice scholarship program that the Senate approved through negotiations with him.

The budget for the 2023-24 fiscal year was due June 30. But with the Democratic-controlled House refusing to go along with the $100 million earmarked for the PASS scholarships (formerly called Lifeline) for children in failing public schools, Shapiro is now playing ball with the House and leaving the senators to fume.

Previously, Shapiro campaigned on the promise of scholarships for students in failing public schools but teachers’ unions and many of his fellow Democrats opposed the plan. A Commonwealth Foundation poll found 77 percent of Pennsylvanians agreed that the state “has arbitrary school district boundaries that traditionally force underprivileged students into underperforming schools. All kids should have access to the best public schools, regardless of location.”

Shapiro released a statement Wednesday afternoon, saying in part, “Knowing that the two chambers will not reach consensus at this time to enact PASS, and unwilling to hold up our entire budget process over this issue, I will line-item veto the total $100 million appropriation, and it will not be part of this budget bill.

“While I am disappointed the two parties could not come together, (House) Leader (Matthew) Bradford has given me his word — and he has written a letter outlining directly to (Senate) Leader (Joe) Pittman — that he will carefully examine and consider additional education options including PASS, Opportunity Scholarship Tax Credit (OSTC), and Education Improvement Tax Credit (EITC) as we work to address our public education needs in light of the Commonwealth Court’s recent education ruling,” Shapiro said.

The last three budget cycles have seen major increases in education funding, including $567 million for basic education; $100 million level up; $100 K-12 mental health; $125 million school safety/facilities; $50 million special education; $100 Million Lifeline/PASS Scholarships; and free lunches.

Advocates for school choice unloaded on Shapiro over his reversal.

“Governor Josh Shapiro said he supported private school choice and even put it in his education platform before the election. He just sent out a statement indicating he will line-item veto the school choice program in the budget,” said Corey DeAngelis, executive director of the Educational Freedom Institute.

“He played the parents of Pennsylvania.”

House Republican Appropriations Chairman Seth Grove (R-York) said his committee is counting the days, hours, minutes, and seconds Pennsylvania has no budget.

“I think it’s important for Pennsylvanians to know the length of time House Democrats have held the budget hostage over Lifeline Scholarships,” Grove said. “We’re talking about 0.2 percent of the budget, just $100 million to help kids in failing schools. This is what House Democrats have chosen to grind the entire process to a halt over.”

Sen. Anthony Williams (D-Philadelphia/Delaware) said he is “very disappointed.”

“Children who are in these schools need them to prepare them for life, whether that’s public school, charter schools or parochial schools. And we need to do everything we can do to help them.”

Commonwealth Partners President and CEO Matt Brouillette released the following statement this afternoon after Gov. Josh Shapiro said he would veto PASS Scholarships (formerly Lifeline Scholarships).

“Today, Gov. Josh Shapiro not only reneged on his word to the people of Pennsylvania. But worse, at the first sign of opposition he gave up the fight to rescue kids trapped in failing schools.

“He claims he wins big fights, but in the first big fight of his administration—with kids’ futures on the line—he left the court without even taking one shot. Today, Gov. Shapiro shows who really runs this state, and it’s not him.”

Pennsylvania GOP Chairman Lawrence Tabas said, “By vetoing the Lifeline Scholarship Program, not only is Josh Shapiro crushing hope of a better education and a better life for disadvantaged children, but he is shamelessly catering to the teachers unions, which benefit from trapping these children in bad schools. There is no acceptable reason to deny any child, of any color, background, or Zip code the potential that comes with access to a better education.”

Charlie Gerow, a Republican political consultant with Quantum Communications, said about Shapiro’s bypassing the Senate, “Shapiro plays political games. Big shocker. Sadly, this one is at the expense of our kids.”

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“Chester’s financial situation is critical, and it is running out of time to find a solution.”

That grim analysis was given last week by the city’s state-appointed receiver Michael Doweary, who added the alternative to a solution could be dissolution — literally. The City of Chester might be incorporated and cease to exist if its fiscal problems aren’t solved.

“Everything is on the table,” Doweary said.

“Everything on the table” has ironically been Chester’s problem for years. The city has maintained a bloated budget with considerably more expenditures than revenue. It has also struggled to accurately keep track of its finances, with officials often unable to produce correct and timely financial reports.

Like many cities in the northeastern U.S., Chester once enjoyed a boom as a manufacturing and distribution hub. The decline of those industries led to years of a shrinking economy and dwindling tax receipts.

Chester first fell under Pennsylvania’s Act 47, the Municipalities Financial Recovery Act, in 1995. A decade later, its fiscal fortunes had not improved. By 2006, city officials had to take out a major deficit-backed loan to pay employees and keep basic services running.

Frank Catania, an attorney for the city’s Chester Water Authority utility concern, told Delaware Valley Journal that state overseers at the Department of Community and Economic Development handled Chester’s management badly.

“During all of this time, the DCED was involved in overseeing the finances, and they were as useful as spectators at a house fire,” he said, adding bluntly: “The Act 47 consultants did nothing.”

Catania was also involved in arbitrating several disputes between the city and emergency responder labor unions. In multiple rulings in favor of increased pension benefits for represented employees, Catania argued that “the city’s ability to pay” the benefits was highly doubtful.

The previous mayor John Linder “could have appealed the payout” and “gone to court,” Catania argued. “He didn’t, and then it just got worse.”

The city’s financial future looked modestly improved by 2007 with the construction of Harrah’s Philadelphia Casino and Racetrack at the site of the former Sun Shipbuilding and Drydock manufacturing facility.

Yet the city’s spending still continued to exceed its income. An amended recovery plan in 2016 projected a roughly $4.5 million surplus in 2019 if the recovery plan were adopted. But the city receiver noted earlier this month that the city saw “a general fund loss of approximately $6.8 million that year.”

The lion’s share of the city’s massive budget goes toward personnel costs. Of the roughly $56.5 million the city projected for the 2016 fiscal year in its recovery plan, over $40 million went to categories such as “salaries and wages,” “overtime,” and “healthcare.”

Its overtaxed budget and cratering revenues pushed the city to shortchange its financial obligations. Doweary’s report from August 2020 said Chester “[had] not made its full minimal municipal obligation to [its] three pension plans since 2013, leading to a severely underfunded pension situation.”

Further complicating the city’s finances has been a lack of transparent accounting of key city funds.

A 2013 independent audit of the city’s finances left the auditors “unable to obtain sufficient appropriate audit evidence” about “various classifications of certain revenues and expenditures” related to the city’s general and proprietary funds, among other outlay streams.

Similar shortfalls were found in audits conducted for the years 2015 and 2017.

Other instances of financial mismanagement abound. A state auditor general report in 2021 found the city “failed to deposit its state aid allocations into the police pension plan” in a timely fashion. The receiver’s office, meanwhile, identified a “pattern of pushing a portion of each fiscal year’s obligations into the next one,” which “made it difficult to accurately analyze the [City’s] financial performance on an annual basis.”

The receiver, whose office did not respond to several queries for this story, called the city’s underfunded pensions “the largest and most severe” of its financial crises.

By April 2020, when then-Gov. Tom Wolf announced a Declaration of Fiscal Emergency for the city and implemented an Emergency Action Plan; Chester’s police pension fund had “less than six months of beneficiary payments” in its coffers, the report said.

The receiver, in his report, argued the city government has followed “a pattern of … either failing to adopt a realistic budget, failing to follow that budget or both, which results in consistent, large deficits.”

Though the receiver’s predictions for the city have been dire and foreboding for several years—including last week’s claim it is “running out of time to find a solution”—city leaders have argued the situation is not as bad as the state has made it out to be.

“How can anyone be expected to continue to work with a team that even mentions the possibility of dismantling and dividing the city through disincorporation?” Chester Mayor Thaddeus Kirkland said at a recent press conference.

Kirkland said city leaders will be heading to the state capitol to secure more funds for the beleaguered municipality, in particular from the near-$10 billion surplus the state currently holds in its coffers.

“This mayor and council members will be visiting Harrisburg to find out how we get our share of that $8 billion that sits in Harrisburg,” he said.

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Delaware County’s budget is under extraordinary upward pressure, an analysis conducted by Broad + Liberty shows. The general fund total spending spiked from $251 million in fiscal year 2019, the last year a Republican Administration managed county operations, up to $284 million in the adopted 2022 budget — an increase of thirteen percent.

Yet as large as those numbers are, they have been adjusted upwards again since the budget was adopted, and the general fund doesn’t capture large budget edits happening in other departments.

In a special budget meeting in June, the $284 million in spending for the 2022 general fund budget was adjusted upwards by another $6 million, bringing this year’s total budget to $290 million, pushing the aforementioned increase up to an eye-popping sixteen percent. Despite the many revisions to the budget at the June meeting, the county conceded that still more budget revisions were forthcoming, including a review of unanticipated costs associated with de-privatizing the prison in the fourth quarter, as well as requests from the county elections director and the Fair Acres Geriatric Center.

The fact that county Democrats are spending significantly more in 2022 than county Republicans did when they were in the majority in 2019 might be expected. Democrats are ideologically predisposed to tax their constituents to fund expanded government services. Indeed, most members of the current council campaigned on the creation of a county-run health department as far back as 2017 and had actually begun parts of the process as early as 2019, despite the fact that a previously commissioned study conducted by John Hopkins University concluded no such bureaucracy would substantially improve public health outcomes.

As a practical matter, the county received more than $200 million in federal Covid-19 stimulus between the Trump Administration’s CARES Act and the Biden Administration’s American Rescue Plan Act. So, the obvious question for Delaware County taxpayers is: What are they getting for their money? Where is all that stimulus money going?

Broad + Liberty’s analysis of the county budget and subsequent spending revisions is likely to alarm many taxpayers.

For instance, 2019 was the last year the Republicans controlled spending on core government operations funded primarily by real estate taxes. Total departmental expenses that year were $156 million.

In 2022, the Democratic majority adopted a budget that called for $189 million in spending. General Administration spending increased from $16 million to $26 million. Community Health spending, the line item that accounts for the newly created Delaware County Health Department (DHCD) in Yeadon Borough, increased from $377,000 to $8.5 million. In aggregate this represents a 26 percent increase in spending on core operations since the change in partisan control.

Additionally, at the June budget meeting, the county revealed it will adjust the health department budget for fiscal year 2023 from $11.8 million up to $18.2 million. That $6.4 million increase represents a 55 percent increase in its initial projection for next year and a 114 percent increase overall. It’s important to understand that because DCHD is its own category of spending, these increases are not captured in the previously discussed sixteen percent increase to the general budget.

For now, Covid-19 monies from the federal government have helped smooth over most of these costs. By law that money must be completely spent by 2024. So, the issue for taxpayers is whether the county’s operations and current spending trajectory can continue without substantial tax increases — or service cuts — when federal money is no longer available to subsidize a vastly expanded county government.

In the 2022 adopted budget alone, county council used $19 million in federal reimbursements and $6 million in cash reserves to balance a budget they have been unable to adhere to. The general fund and the DCHD, taken together, have seen a total of $12.2 million of edited, post facto spending that the original budget missed.

County officials attribute much of the increases to the creation of a county-run health department as well as the county assuming the management of the George W. Hill prison, which had been privately run for three decades. Budget documents also show the county aims to greatly increase salaries at the county prison, possibly revealing that officials underestimated those costs. At the June budget meeting, Howard Lazarus, the county’s executive director, said the county still intends on raising salaries for prison guards by 50 percent.

Records reviewed by Broad + Liberty show substantial increases to the county’s payroll, well beyond the mere addition of employees to the Department of Corrections or DCHD. Salaries, in general, appear to be a red flag. Using data obtained via a Right to Know request, the Delaware County Republican Party found that in 2020, the first year that the Democrats-controlled County Council, the county employed 832 people making more than $50,000 a year. Those salaries totaled 56.7 million annually.

Two years later in 2022, the county had 1,121 employees earning more than $50,000 which brought the annual total up to $77.9 million — an increase of $21.2 million. A similar analysis by Broad + Liberty largely confirms that thrust from the county Republicans.

Furthermore, every new dollar in salary comes with an additional cost of benefits. When queried by Broad + Liberty, the county said it has a 70 percent “total employee benefit cost,” meaning for every dollar paid out in salary, the county is on the hook for another 70 cents in benefits. For a county employee that earns $100,000, there is an extra $70,000 in benefits costs. That 70 percent benefits rate is far above nearby counties, like Bucks, which says it has a 41 percent total employee benefit cost.

New departments. New operations. New hires. These are not one-time pandemic-related costs, rather, they are long term obligations for which the taxpayer is on the hook in perpetuity, or at least until there is a change in the administration.

Also, these expenses are funded — almost exclusively — by property taxes and fees levied on residents and businesses in need of government services. So, what lingers as a question is: what percentage of federal monies spent to date have been used for one-time government expansion costs versus what percentage is earmarked for multi-year operational costs? How will these operational costs be covered going forward? Are Delaware County homeowners on a similar path as those in the City of Philadelphia?

From the publicly available budget documents, the answers to those questions are unclear. Perhaps intentionally so. Which is why it is worth noting that in May 2022, Philadelphia’s Office of Property Assessment created an uproar when it announced that residential property assessments for tax year 2023 are going up by an average of 31 percent citywide. In some neighborhoods, real estate taxes have doubled. According to the Mayor’s office, the increases are highest in low-income black and brown neighborhoods. These neighborhoods are already grappling with high inflation and even higher crime.

In response to multiple queries on these matters, executive director Lazarus told Broad + Liberty, “The sound financial management practices put in place have resulted in a greater degree of revenue and cost realism and alignment, transparency in the sources and uses of funds, and a decreased reliance on General Fund reserves to balance the budget.”

We hope he’s right. Our analysis, however, tells a very different story about the county’s likely fiscal position when the federal money runs out by 2024. Using Lazarus’ own methodology for the how the tax revenues were calculated for the 2022 budget as a baseline — and assuming the county still leveraged approximately $25 million in federal subsidies and cash reserves — the large incremental cost increases hitting the general fund such as the budgeted county contribution for DCHD and the $6 million mid-year budget adjustment would result in a 21 percent property tax increase. Without subsidies and reserves, the increase could exceed 25 percent.

As the old saying goes, elections have consequences. And as former Chief of Staff to President Obama Rahm Emmanuel once said, you should never let a good crisis go to waste. The strange and unanticipated confluence of those two political realities have left the county — its government, its taxpayers, its voters — in a set of circumstances unlike any in its history. The policy merits of the CARES and American Rescue Plan Acts notwithstanding, county officials are without question in a cash position to make historic investments in county infrastructure and strengthen the balance sheet for the foreseeable future. On the other hand, reckless spending, and poor financial planning in pursuit of fashionable ideologies over functional governance could have devastating socioeconomic effects for generations to come.

The county is at a crossroads. Let the data inform which road is taken.

This article first appeared in Broad + Liberty.

A public finance watchdog group gave Philadelphia an “F’ for its budget numbers and says the city’s attempting to hide a debt burden that totals $25,900 per taxpayer.

In a new report entitled “Financial State of the Cities,” the organization Truth in Accounting (TIA) says dozens of the nation’s 75 biggest cities claim to have balanced budgets, but don’t. Many aren’t fully counting pension obligations, the report said. And that includes Philadelphia.

While these cities may appear to have balanced their books, the reality is very different, says TIA founder Sheila Weinberg.

“They have surpluses and seem to be in good shape. But it is misleading; they are ignoring their debts,” Weinberg told Delaware Valley Journal. “It’s a little like saying, ‘well, you got plenty of cash in your pockets but just ignore those big credit card debts you have in your back pockets.’”

Collectively, these cities have accumulated some $357 billion in debt. That’s despite the fact these cities, unlike the federal government, are legally required to have balanced budgets, the report said.

Sara Durr, a spokeswoman for the United States Conference of Mayors, didn’t respond to requests for comment about some of her organization’s largest members.

The most common way of clouding budgets, the report said, is overcounting assets and undercounting or hiding debts.

The TIA report said cities are using dubious accounting practices. These include: “Inflating revenue assumptions. Counting borrowed money as income. Delaying the payment of current bills until the start of the next fiscal year so they aren’t included in the budget calculations.”

Both Philadelphia, which was given an “F” for finances, and Boston, which received a “D,” according to the report, have far more in debts than assets, the TIA report said.

A spokesman for Boston Mayor Michelle Wu didn’t respond to requests for comment. But a spokesman for Philadelphia Mayor Jim Kenney said Philadelphia’s finances are improving.

“The city has and—despite ongoing challenges from the financial impacts of the pandemic—continues to make significant progress regarding our financial situation,” spokesman Kevin Lessard said. “The city went into the pandemic with the highest ever fund balance (savings), a recession reserve built into our five-year plan, and a small rainy-day fund.”

The TIA disagreed, and said the city debt burden is $25,900 per taxpayer.

“Philadelphia’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years,” the report said.

“The city had set aside only 51 cents for every dollar of promised pension benefits and 10 cents for every dollar of promised retiree health care benefits. Philadelphia did not have enough money set aside to weather the pandemic and the city has been in poor fiscal shape for years,” according to the report.

Lessard says city officials are addressing the issue.

“We’ve also increased the funded percent of the pension fund from the mid-40s to over 50 percent as part of a multi-year plan to get funding to 100 percent funding in about a decade,” Lessard says.

“That pension funding plan won an innovation in government award from the Government Finance Officers Association,” he continued, “and an analysis from Pew showed that our approach to pension funding put us in a better position than other cities are to continue to increase our funded percent even in a down market.”

But how and when will taxpayers know that a city could be headed for a New York City 1970s-style fiscal crisis, in which the city needed help to pay its bonds and barely escaped bankruptcy? Or a Detroit situation in which a city went broke?

Weinberg can’t say exactly when cities will go through similar crises. However, she argues credit rating agencies will not be in a position to spot problems ahead of time.

She says cities are using what are called “generally accepted accounting standards,” which allow budget officials to legally present budgets that appear healthier than they are. “These standards are not strict enough,” Weinberg said. Corporations have much stricter accounting standards than those used by bond raters in evaluating cities, she said.

“They (the bond raters) only care if the bonds get paid and bond holders are first ones to get paid when tax dollars come into the city.” She said most ratings aren’t based on the overall financial conditions of cities.

Weinberg says misleading numbers are anti- democratic. “People are making decisions on who to vote for based on the wrong numbers.”

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