SENATE DEMOCRATIC APPROPRIATIONS COMMITTEE

Analysis of the 2008-09 Budget

GENERAL FUND

            The key to understanding the 2008-09 fiscal year budget is to look to the national economy.  Many difficult choices were made in crafting a budget in these tough economic times.  The expected recession has not been officially declared but it is clear that revenue growth was not sufficient to carry out the Governor’s vision of February.  An expected $427 million revenue surplus for 2007-08 was, at $167 million, much less robust.  The economic slow down is expected to continue into the 2008-09 budget year.    Projected revenue for 2008-09 was reduced by $300 million.  Since the 2007-08 surplus becomes the 2008-09 beginning balance the loss of revenue for this budget year was essentially $560 million.   

            The official revenue estimated for 2008-09 will be $28.694 billion, an increase of 2.77% over the previous year.  An additional $70 million will be transferred from various other funds to provide significant revenue to the general fund to support the budgeted expenditures of $28.217 billion.  The expenditure growth in this budget is 3.8%.  Most general government appropriations were automatically reduced by 1.3% to help bring expenditures in line with the reduced revenue.  The level of expenditure is $149 million less than the Governor proposed in February.  

Funds Transferred to the General Fund 

Three other fund balances were tapped to supply the revenue needed to balance the budget.  The Rainy Day Fund was not one of the funds that were utilized.  The statutorily required transfer of the 2007-08 surplus which would have been $138 million will not be made into the Rainy Day Fund.  Instead the State Liquor Stores will transfer an additional $40 million.  The Banking Fund and the Recycling Fund will each transfer $15 million to the General Fund.

TAX CHANGES 

            Because the available revenue was less than was expected there were very few tax changes.  In fact only one change, a small volunteer firefighter tax credit, reduced tax revenue.  This credit reduces active volunteer firefighter’s income tax liability by up to a maximum $100.  The credit is designed for only this fiscal year.  The total amount of the credits is capped at $4.5 million. 

             The recipient of the funds from the PIT checkoff for breast cancer research was also changed.  The money had gone to the Department of Health, who had sent the money on to a non-profit organization known as the Breast Cancer Coalition.  The change will remove the Department of Health from the chain and the donated money will go to the Breast Cancer Coalition. 

            The bill also authorizes the Joint State Government Commission to conduct a study on the what the effect of various poverty programs would be on the poor in the commonwealth. 

LOTTERY FUND

            The Lottery Fund sold $13 million more in tickets in 2007-08 than in the previous year.   While ticket sales were below the amount estimated last July they were $162 million higher than the revised estimate in February.  This increase has alleviated some of the concern about the fiscal health of the fund.  While the Governor was projecting a 2008-09 ending balance of only $34.5 million, a more healthy $90 million balance is now projected.   

            The Lottery Bureau plans several adjustments to the games that they feel will return the fund to balances over $100 million in several years.  One of the changes that they had planned was to get legislative approval for lower the profit margin on their overall ticket sales.  With a lower profit margin, which in effect gives their players higher earnings, the Lottery professionals hope to increase the sales of instant tickets which are their bigger seller.  They would essentially sell more of the tickets that bring in less money but the higher volume will increase overall revenues. 

            Expenditures for programs for senior citizens will grow by 6.7% over the previous budget year. 

DEPARTMENT OF AGING 

            The budget includes $100,000 in lottery funds for a new initiative entitled “Improving End of Life Services”, as part of his Prescription for Pennsylvania plan.  Funding will be used to assess the opportunities for increasing the availability of hospice and pain management care services.

Family Caregiver Support 

The Family Caregiver Support Program appropriation is $12.1 million.  This program is also supported by $10 million in federal funds.  The program assists families who maintain frail relatives in their home.  Working through AAA’s, the program provides benefits counseling and, depending on income, financial assistance including supplies, services and home adaptations and devices.  It is anticipated that 7,925 families will receive these services in 2008-09. 

Alzheimer’s Outreach Services 

The budget includes $250,000 for Alzheimer’s Outreach Services.  It is also anticipated that Pennsylvania will receive $350,000 in federal funds for an Alzheimer’s Demonstration Grant program. 

Pre-Admission Assessment 

Funding for the Pre-Admission Assessment Program is increased by $1.4 million, to provide for additional assessments.  This nursing home pre-admission screening program helps older Pennsylvanians and their families determine the least restrictive environment needed and assists them in securing and managing intensive in-home services tailored to their needs. It is anticipated that assessments and referrals to community services will increase in 2008-09.  Referrals to nursing homes are also expected to increase. 

PENNCARE

 The PENNCARE program provides home and community based services to older Pennsylvanians to enrich their lives and enable them to delay or avoid moving to a nursing home.  This budget includes $247.6 million for the lottery funded PENNCARE appropriation to continue the current Attendant Care Program and provide services to an additional 260 recipients.  Funds are also used for Older Adult Protective Services to investigate suspected elder abuse reports.  As part of this appropriation, $3.0 million is available to provide additional services to reduce reliance on institutional long-term care and promote growth of high quality home and community based services. 

Home and Community-Based Services – Tobacco Settlement Fund 

A total of $25.8 million in Tobacco Settlement funding is included in the budget to provide home and community-based services to older Pennsylvanians.  This includes an increase of almost $3.0 million to continue current home and community-based services, as well as nursing home transition activities, and an increase of $1.5 million to provide waiver services to additional recipients.   

Pharmaceutical Assistance

           The Pharmaceutical Assistance Program provides help to qualified older Pennsylvanians who are 65 years of age and over and whose cost of drugs is a burden to them.  The program is financed by the Lottery and Tobacco Settlement Fund revenue.    

The commonwealth has expanded its PACE and PACENET programs to make them compatible with and complementary to the Medicare prescription drug program.  PACE Plus Medicare enables cardholders to take advantage of the features of both PACE and the Federal Medicare Part D benefit by filling the gaps encountered by cardholders in Medicare Part D including deductibles, the donut hole phase of no Medicare coverage, and co-payment differentials between the Part D plan coverage and the PACE and PACENET co-payments.  PACE Plus pays the Medicare premiums for Part D coverage PACE cardholders, while PACENET cardholders pay the Part D premium. 

With a heavier reliance on lottery funds and a reduced use of tobacco settlement funds,  the budget includes funding for 2008-09 that will allow the average number of seniors covered by PACE, PACENET or PACE Plus Medicare to rise to 407,575, an increase of 49% over the last 5 years.  It is estimated that 24,000 additional seniors will be served in 2008-09.  

At the time of this report, Senate Bill 4 was pending passage.  The bill would  maintain the eligibility for PACE and PACENET enrollees who would otherwise be disqualified from participation in the program solely due to a Social Security cost-of-living adjustment.  The exemption for PACENET would be retroactive to December 31, 2007.  The act would become applicable to PACE enrollees on December 31, 2008.  This moratorium is extended for both until December 31, 2010. 

The bill would allow approximately 1,400 persons enrolled in the PACENET program, as of December 31, 2007, to remain eligible for the program.  For 2008-09, the number of PACENET enrollees impacted by the Social Security exemption is projected to increase to 2,925.  The bill also allows approximately 4,475 persons enrolled in the PACE program, as of December 31, 2008, to remain eligible for the program. 

Reforming the Long-Term Living System 

The budget includes a total of $4.2 billion in total funds among departments for nursing home and community based services, including funding to enable 2,100 additional seniors to remain in their homes as an alternative to nursing home care. 

            Pennsylvania has the third oldest population of any state, and is experiencing demographic changes that many other states will not experience for another 10 to 15 years.  Providing services for the rapidly growing number of seniors, especially those 85 and older, will present a major challenge for the commonwealth in the coming years.  

The problem will come to a head in the near future, as 2006 was the year that the first wave of baby boomers, many struggling to care for elderly parents, joined the ranks of the 60-plus year olds.  By the year 2020, one in every four Pennsylvanians will be age 60 or older.             

The goal of this administration is achieving a balance of 50% institutional care to 50% home and community based care. 

DEPARTMENT OF AGRICULTURE

           General Government Operations received $31.34 million in this budget which is a 1.5% decrease from the Governor’s budget but an increase of 5.2% from last year.  Much of this increase will be directed for the administration and support of programs that were cut back such as the Animal Health Commission and Agriculture Research. (See above chart)  Additionally, General Government Operations received $375,000 to strengthen the Food Safety program which has wide ramifications upon the health of millions of Pennsylvanians who buy and eat prepared food at grocery stores and restaurants. 

Crop Insurance remained at level funding in this budget at $1.5 million compared to the available year.  This program which has existed in the last decade has helped farmers deal with adverse weather conditions that have seriously impacted crops across the state. 

The 2008-09 budget provides that Agricultural Promotion, Education and Exports program be funded at $1.34 million.  This is 14.63% decrease from last year’s funding level.  Despite this cut, the Department plans to continue to increase the number of Pennsylvania exports beyond the $1.8 billion that was exported last year. 

The State Food Purchase Program is funded at $18 million for the 2008-09 fiscal year.  Much of these dollars will be used to purchase federal surplus food and to leverage additional money for food programs throughout the state.   During the downturn in the economy, this program has provided significant food resources to countless families. 

The Animal Health Commission will receive $6 million in the 2008-09 budget as compared to $6.625 million in the 2007-08 fiscal year.  The Commission will be able to absorb the cut with help from the General Government Operations line item in the area of administration.  The Commission ensures the quality of Pennsylvania’s livestock even during times when the state faces such diseases as brucellosis and bovine tuberculosis.    

CORRECTIONS 

State spending for the Department of Corrections will reach $1.65 billion, an increase of $39.3 million, or a 2% increase from the 2007-2008 fiscal year.  This increase is partially due to the expansion at the Community Correction Centers and at current SCI facilities. 

The SCI appropriation has increased $29.8 million over FY 07/08 to $1.34 billion.  The inmate population is the single most important factor affecting costs in the correctional system.  By the end of FY 08/09, the inmate population is projected to grow to 48,731, an increase of 2,700 from June 2008.  When factoring in the cost of inmate health care, education and training expenses, the current average cost per inmate is $37,515. 

The Medical Care appropriation is $214 million, an increase of $9.9 million.  Following a National trend, every year sees an increase to the cost of providing adequate healthcare to the inmates, especially the elderly population.

Legislation 

The increase in the inmate population is the biggest challenge facing the Department and the Commonwealth.  Inmate population forecasts show the State prison population will grow to more than 56,500 offenders by 2013, an average increase of 2,027 inmates per year.  Some statistics about the current inmate population: 

1)                          Admissions for less serious offenders has increased at twice the rate of admissions for violent offenders over the last seven years

2)                          36% of PA prison beds are filled with less serious offenders

3)                          The recidivism rate in PA is 46%, meaning almost half of all inmates return to prison within 3 years of their release 

In order to begin to deal with prison overcrowding crisis, the Governor proposed enactment of comprehensive legislation:  HB 4, 5, 6, and 7.  This legislative package passed both chambers during final budget negotiations.  These bills are directed at lowering the recidivism rate in the following ways: 

1)     Increasing offender access to crime reducing drug treatment programs

2)     Provide incentives to less violent offenders to complete programs that provide them with tools to live crime-free in society

3)     Enhance Probation & Parole’s ability to focus more on offenders during their first year of parole.

4)     Authorizing PA Commission on Sentencing to recommend necessary changes to legislation and develop guidelines for offenders who violate parole, probation, or State Intermediate Punishment program (SIP) 

PROBATION and PAROLE 

Probation and Parole spending will total $114.8 million in FY 2008/2009, which is an increase of approximately $5.1 million from last year. 

In the enacted 08/09 budget, the General Government Operations appropriation received an increase of approximately $5.2 million or 5.7% above the Governor’s FY 07/08 budget.   

Funding for the Sexual Offenders Assessment board was reduced by $82,000 from the Governor’s February budget proposal of $4.2 million.  In addition, funding for Adult Probation services received $251,000 less than the Governor proposed in his February budget.  These and other reductions were necessary in order to bring spending in-line with projected revenues. 

ECONOMIC STIMULUS PROGRAM 

            The final budget agreement includes a $2.865 billion Economic Stimulus plan that will make substantial capital investments in local communities, public infrastructure, alternative energy investment, and transportation programs. See chart on following page for a breakdown. 

Raising the RCAP Debt Ceiling - $800 million  

The General Assembly increased the Redevelopment Capital Assistance (RCAP) authorization ceiling an additional $800 million, from $2.65 billion to $3.45 billion.  The increase will enable more than $1.6 billion in development projects to proceed, including local matching fund investments.    According to the Governor, there are $500 million in projects that are ready to break ground immediately. 

Rebuilding Pennsylvania - $250 million 

Bridge Repair - The Governor proposes an additional $200 million for each of the next 10 years to repair commonwealth bridges.  Over the past 5 years the commonwealth has repaired 1,381 commonwealth bridges.  In spite of this effort an estimated 5,900 state owned bridges remain structurally deficient.  The budget agreement authorized $350 million in bridge borrowing for the next fiscal year. 

Water & Sewer - The budget agreement included the dedication of $800 million in Gaming Economic Development and Tourism Fund support for water and sewer grants, dam repair, and flood control, along with $400 million in additional water and sewer infrastructure financing through PENNVEST.  The PENNVEST borrowing will have to be approved through a public referendum during the November election. 

Rail Freight Program – Capital funding for rail freight assistance will be increased from $20 million to $30 million. 

Aviation Grants – Capital Assistance for Aviation projects for medium/small city/regional airports will be increased by $5 million next year. 

Keystone Opportunity Fund Expansion 

            Legislation was approved to authorize the extension and renewal of unused portions of existing undeveloped portions of Keystone Opportunity Zones, Keystone Opportunity Expansion Zones and Keystone Opportunity Improvement Zones, along with the authority to establish 15 new zones.  Local governments will have the flexibility to request 7 year extensions, or 10 year extensions, effective only when a business occupies the tax zone.