February 8, 2016

State Treasurer Urges New Law To Guide Payment Decisions During A Budget Impasse

In testimony before the Senate Appropriations and Finance Committees Monday, Christopher Craig, Esq., Chief Counsel for State Treasurer Timothy Reese, urged the General Assembly to enact new law to guide decisions on making state payments during a budget impasse.
Craig made it clear the Treasurer’s role is to respond to requests for payments from the Governor’s Office.  
During a budget impasse or in circumstances where enacted line items do not fully fund costs due to a line-item veto or other causes, payments that are considered critical and necessary to the protection of health, safety and welfare and which are in the public interest are made based on the Governor’s Office request and justification.
Craig said the State Treasurer has turned down about 145 requests totalling $4.3 million in payments because they could not qualify for payment under the health, safety and welfare principle.  
The Treasurer’s Office, Craig said, has approved thousands of other payments.
In response to questions, Craig, said the state Constitution clearly says the state cannot spend money unless it is appropriated by the General Assembly, however, other federal and state mandates require government to act in certain circumstances.
Craig gave as an example of the dilemma faced by the Treasurer’s Office funding for the Department of Corrections.  
The state, he said, has an obligation to house, clothe and feed prisoners.  If the state does not pay those costs, it violates that obligation.  Similarly, public safety would be jeopardized if prisoners were to be released because these bills could not be paid.
The Governor’s Office has asked the Treasurer to pay Department of Corrections’ costs that exceed the funds available in the budget signed into law in the December because of the Governor’s veto.
The Treasurer’s Office has asked the Governor’s Office for the guidelines it uses in making recommendations for future payments, Craig said.
Has Treasury exceeded its legal bounds?  Craig, said they took the best decisions they could on requests from the Governor given conflicting mandates and the absence of other statutory guidance.
In the written testimony, Reese said, “In my view, both as a businessman and Treasurer, the budget impasse has severely damaged the Commonwealth’s “goodwill.” Late budgets, unclear spending directives and the legal uncertainties of paying ordinary expenses like debt service create confusion and turmoil.
“There is increasing doubt about Pennsylvania’s financial management, credit worthiness and political leadership. This uncertainty has financial consequences not just for the state, but also for local governments, public school districts, businesses and residents.”
Reese made the role of his Office clear, the State Treasurer can only act on expenditure requests, they cannot originate payments for expenditures.
He continued, “When there is insufficient or no spending authority, these competing mandates create tension between equal branches of government and raise questions for Treasury regarding what expenditures are legal or even obligated.
“As a result, Treasury has been forced into the difficult position of determining, in the face of conflicting legal and statutory guidance, whether the legislature’s right to appropriate public funds or the executive’s role of protecting the public should take precedence.
“These are issues that as a fiduciary, I take very seriously. As the custodian of public funds, I have an obligation to act in the public interest without regard to political considerations. I have sought a path that avoids or at least mitigates damaging the Commonwealth’s financial stability.
“Treasury will continue to cautiously consider these questions and diligently work with the administration and legislature to identify concerns and present solutions that, whenever possible, avoid establishing adverse precedents.”
The State Treasurer recommends the General Assembly made several changes in law to address this issue in the future--
— First, the Fiscal Code could be amended so that in the absence of a budget, Treasury has the authority to make, from any available funds, any debt service payment that is due for any Commonwealth agency.
— Second, the legislature could consider adopting a “default budget” if a General Fund budget is not adopted by a specified date. This contingency budget could provide spending authority that equals the most recently enacted budget (or perhaps a predetermined percentage of that budget) and require each Department to submit monthly expenditure reports to the legislature. It would prohibit new hires and exclude any one-time expenditures unique to the prior budget. Legislation has already been introduced in the Senate that captures some of these concepts, and both Minnesota and Rhode Island have already adopted similar provisions.
— Third, the Judiciary and General Assembly could consider operating under continuing appropriations at the same level as the most recent budget without requiring a newly enacted budget unless amended by the legislature. Illinois has adopted this concept as part of their fiscal code.
— Finally, when an agency’s appropriations encounter an unauthorized expense, there should be a transparent process for approving additional expenditure outlays. Connecticut law provides an example of how this could be implemented in Pennsylvania.
The Committees also heard testimony from Michael R. Dimino, Sr. Esq., Professor of Law Widener University Commonwealth Law School to give background on legal precedents on these issues.
Republican Reaction
Senate Appropriations Committee Majority Chair Pat Browne (R-Lehigh) said in a statement, “In the past, when the General Assembly and the Governor have not been able to reach an agreement on a general fund budget by the beginning of the fiscal year, payment of these costs are understood to be made under the platform of public health and safety.
“But, the question that has arisen is whether or not it is appropriate and legal for payments to be made when a fiscal year appropriations act has been approved and the payments are made in excess of that Appropriations amount for the fiscal year. This is especially important where the chief executive has unilaterally reduced the expenditure amount under line item veto authority.”
“This could establish a dangerous precedent toward the erosion of the constitutional principle of separation of powers.  A Governor, using a subjective determination of what’s in the best interests of the Commonwealth, could use his line item veto to bypass the state legislature’s constitutional appropriation authority. It would afford himself or herself the opportunity to determine additional funding for state programs and services when there is not be a complete fiscal year budget.
“Furthermore, it would potentially allow for the Governor to unilaterally set priorities for spending by choosing the amount and timing of which programs to fund under the “safety, health and welfare” category of services.”
Sen. John Eichelberger (R-Blair), Majority Chair of the Senate Finance Committee, said in the same statement, “This is a very serious, precedent setting situation. The Governor’s unilateral actions disregard any measure of accountability by the General Assembly.”
Click Here to watch or listen to the hearing online.  A copy of the State Treasurer's written testimony is available online.
State Spending Without Full Budget Irks Senators