Gov. Corbett proposes $29.4 billion state budget; suggests pension savings, new money for education

HARRISBURG -- After earlier proposals of spare budgets, Gov. Tom Corbett on Tuesday put forward a more generous plan for state government -- with a new $240 million grant program for K-12 education, an area of political liability -- as he heads into a re-election battle.

Along with the Ready to Learn block grant program, which schools could use for curriculum development or teacher training, the governor proposed a $25 million scholarship fund for college students from middle-income families, funding to provide services for 1,200 people with intellectual disabilities and the first increase to special education funding in six years.

Taken together with rising pension and Medicaid costs, the proposals would bring the state general fund to $29.4 billion, an increase of 3.3 percent from the current year. To pay for it, the administration relies on projected revenue growth, one-time sources such as limited leasing of state forest and park land and a shortening of the holding of unclaimed property, reduced pension contributions and yet-unapproved changes to the state Medicaid program.

"Things are coming together," Mr. Corbett told legislators, administration officials and guests -- including Pittsburgh Mayor Bill Peduto -- gathered in the hall of the House of Representatives. "All around us are the hopeful signs of a stronger Pennsylvania. We have work to do and commitments to honor."

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Republican legislative leaders received the proposal cautiously, praising the proposed block grant, which would target specific classroom programs, while demurring when asked if Pennsylvania government should increase its general fund by $925 million. Senate Majority Leader Dominic Pileggi, R-Delaware, noted the address will be followed by weeks of appropriations hearings.

"This is the beginning," he said. "The budget always changes between the governor's proposal and what's enacted in June."

Democrats were unified in their criticism, dismissing attempts to boost funding for education or jobs programs as "too little, too late" and blasting what they described as his failure to properly fund schools and social services and to expand Medicaid.

Senate Minority Leader Jay Costa, D-Forest Hills, called the budget "a campaign budget, delivered in an election year, and tied to political talking points."

While the general fund is the main topic of conversation, the state's operating budget would total $71.8 billion, including $24.2 billion in federal money and the $2 billion lottery fund.

One area of significant general-fund growth is in rising state contributions -- set under a 2010 law -- to the retirement systems for state and public school workers. Mr. Corbett, a Republican elected on a pledge against tax increases, has maintained that the payment schedule is unsustainable, and one year ago he proposed significant changes to the systems.

But his call for reductions to the benefits tied to future earnings by workers was met with promises of lawsuits by labor unions, and his plan to divert new hires into a 401(k)-style plan was the subject of some reviews finding significant costs. Neither became law.

Now, the governor has abandoned plans to constrain the future benefits of current workers, and instead aims to find a way to lower the risk to the state of retirement benefits for new workers. Budget Secretary Charles Zogby said the administration is contemplating a plan that would enroll new hires in a defined-benefit system up to a certain salary point -- he mentioned $50,000 -- after which earnings would accrue benefits to a defined-contribution plan.

Accompanying such a change would be a move to reduce the scheduled increases in employer payments. Next year, the proposal would lower state contributions approximately $171 million and school district contributions $131 million.

Throughout his term in office, Mr. Corbett has been dogged by the cuts in funding schools received his first year, when federal stimulus funding came to an end. The governor has maintained that he has directed record levels of state money to schools -- though he, unlike legislative Democrats, counts the rising pension payments.

He tried again today to change that narrative, proposing a new $240 million Ready to Learn block grant that would be available to train teachers and develop curriculum. Low-performing schools would pick from a few options for using the money, while high-performing schools would have greater discretion.

The proposal calls for basic education funding, which makes up the bulk of state money for K-12 schools, to remain at the current level of $5.5 billion.

Democrats were largely unimpressed with the new education initiative. State Treasurer Rob McCord, a candidate in the Democratic gubernatorial primary, said the education increases were "almost comically small amounts compared to the reductions in public investments." Other Democratic candidates also turned to past education funding choices in criticizing the proposal.

And the Pennsylvania State Education Association, the state's largest teachers union, dismissed the block grant as "an election-year gimmick."

"Now he's proposing to 'train' teachers on how to do more with less," spokesman Wythe Keever said in an email. "Perhaps the governor's teacher training program could help train teachers how to teach with larger class sizes, and how to make up for eliminated programs that help students learn, like full-day kindergarten and after-school tutoring and Advanced Placement classes."

There was praise for a proposal to increase special education funding, which has remained flat for six years, by $20 million. The administration called for the funding to be distributed with consideration to the number and needs of special education students in a district.

The proposal relies on several one-time revenue sources. One would transfer $225 million in private equity investments and cash reserves from the tobacco settlement fund and health venture investment account to the Public School Employees' Retirement System, to make a partial pension payment.

The budget counts $75 million from lifting a Rendell-era ban on new oil and gas leases on state forest lands. Pennsylvania would only consider leases that would not result in new construction on forest land, said Patrick Henderson, Mr. Corbett's energy executive. It could, for instance, allow leasing for a horizontal well that starts on private property adjacent to a state forest.

And $150 million is booked from reducing from five years to three the time unclaimed property is held before being claimed by the state.

Democrats criticized the maneuvers, with Rep. Dan Frankel, D-Squirrel Hill, calling the budget unsustainable.

Mr. Corbett hinges $125 million in savings on the federal government approving requests from Pennsylvania to overhaul its Medicaid program. The proposal would change benefit packages, enact co-pays and premiums and move some people from state-funded to federally funded care.

Secretary of Welfare Beverly Mackereth said at a briefing Tuesday she did not anticipate problems in that process, though she said, there "will be some give and take."

"We have been in conversations with [federal officials] weekly," she said.

Medicaid covers one in six Pennsylvania residents and is projected to account for more than $8 billion in state spending in the 2014-15 budget.

The proposal also includes a $9 million increase for outreach and enrollment efforts for the Children's Health Insurance Program (CHIP), an additional $4 million in support for loan repayment assurance to healthcare practitioners in under-served areas and an additional $23.5 million to provide services for 1,200 people with intellectual disabilities.

State prisons would receive an additional $78.3 million, of which $72.3 million is due to contractual increases in salary and benefits, the administration said. And 350 new state troopers would be trained, using an appropriation of $13.7 million.

Karen Langley: Kate Giammarise: Anya Litvak contributed.

First Published February 4, 2014 11:34 AM

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