Pennsylvania budget impasse leaves schools without state funding

Pennsylvania’s legislature failed to pass a budget by its June 30 deadline. It has failed to pass one since. The impasse, which is approaching three months, has been disastrous for the state’s transit systems and social services. But schools are also feeling the pain. 

The Pennsylvania Department of Education has not sent state or federal funds to school districts, technical programs or intermediate units since the fiscal year began on July 1. 

The Pennsylvania State Educators’ Association calculated that schools across the state missed out on $2.87 billion of state aid in July and August. More than 170 districts in the state rely on state-supported funds for at least half of their total revenue, according to the PSEA.

The Pittsburgh Public School District is worse off than most.

PPS is the second largest school district in the state, with more than 19,000 students. It has a $752 million budget and more than $325 million of total outstanding debt. 

If the state doesn’t pass a budget by mid-December, PPS will be out of money, according to its chief financial officer, Ronald Joseph.

The state’s worst-ever budget impasse lasted nine months, from 2015 to 2016. That time, Joseph said, the district’s surplus covered its missing funds with little effort on administrators’ part. 

In the years since 2015, PPS has run annual deficits, heavily depleting its surplus. At the end of 2024, PPS had just $42 million of cash, or 26.2 days of cash on hand, according to Richard Ciccarone, president emeritus of Merritt Research Services. PPS bonds are rated AA by S&P Global Ratings and A1 by Moody’s ratings.

PPS gets $290 million annually from the state, which is 42% of its general fund, according to Ciccarone. In July and August, the district was supposed to receive $50.6 million as it prepared to open schools on Aug. 25. 

“I think right now we’re in a good position that we could make it to the middle of December without having to liquidate some of our investments,” Joseph said. “But then we also see that there’s a potential booming government federal shutdown on the horizon, so that could potentially affect funds as well. So we’re monitoring that at all levels.”

PPS is somewhat of an outlier, Ciccarone said. Only seven school districts had fewer days cash on hand than Pittsburgh at the beginning of the year. The median Pennsylvania school district receives 34% of its funds from the state and has 96 days cash on hand, according to Ciccarone’s data. 

Pennsylvania has offered school districts a few sources of relief, Joseph said. 

The state offers one-time funding for schools’ debt service payments during budget impasses. PPS received $28.7 million for its September debt service payments through this program, Joseph said, to be repaid once the state passes a budget. 

Additionally, the board of Pennsylvania’s Public School Employees’ Retirement System lowered school districts’ required pension contributions for the duration of the impasse, which reduced PPS’s required contribution by 50 percent, Joseph said. 

But for many districts, that won’t be enough.

The School District of Philadelphia, which had planned to issue $550 million of tax and revenue anticipation notes, reportedly increased its borrowing plan by $1 billion due to the budget impasse. The district is rated BBB-minus by Fitch Ratings and Baa2 by Moody’s Ratings.

Lancaster’s school board placed a $35 million tax and revenue anticipation note with First National Bank on Sept. 5, according to a notice filed on the Municipal Securities Rulemaking Board’s EMMA disclosure website.

The loan was needed to make up for absent state funds, according to a published report. 

Chris Lilienthal, a spokesperson for the PSEA, said that many school districts are consulting with financial institutions and looking at options to borrow. The borrowing costs those districts incur are not likely to be reimbursed by the state, Lilienthal said. 

“Any way you look at it is taxpayer funds that could have gone into our classrooms, Lilienthal said. “It could have gone into investing in our students, and instead, it’s going to be going into fees and interest.”

Even the better-prepared school districts are close to draining their reserves, according Lilienthal said. By the PSEA’s calculations, the average Pennsylvania school district will drain its reserves on Thursday, September 25. 

Revenue anticipation notes won’t be an option for Pittsburgh, Joseph said. 

“The one thing about revenue anticipation notes is that you’re required to repay them by the end of your fiscal year. We have a calendar fiscal year,” Joseph said. “If the budget impasse continued, we wouldn’t have a means of paying it back.”

PPS is planning to use October as a “checkpoint,” Joseph said. If the state still hasn’t passed any measures to fund schools, the district will take more aggressive actions to curtail its spending. 

Joseph pointed to Allegheny County, which encompasses Pittsburgh, and announced a hiring and spending freeze last week. 

“That’s something that we might have to do,” Joseph said, along with “looking at any contractual engagements that we have, that we might be able to get out of, and then really looking at any of our spend and evaluating any non-essential purchases, and just eliminating that.”

During the 2015 impasse, some schools canceled elective classes and extracurricular activities.

As of now, the impasse hasn’t had any long-term impacts on PPS’s finances. However, if there could be consequences if the situation worsens, such as penalties for missed payments or borrowing costs.

“You don’t want to have any type of termination of services from not paying your obligations on time. You want to make sure you’re making your retirement system payments on time, because if you don’t, that’s a 7% penalty,” Joseph said. “Long term, if you aren’t able to make payroll, that’s something where you’ll lose the trust of your employees. You’ll have employees possibly leaving.”

“There are school districts that rely very heavily for their overall expenditures on property taxes. So they may be able to go a little bit longer,” said the PSEA’s Lilienthal. “Lancaster, for example, about 1/3 of its overall budget comes from local property taxes and local revenue. So that means when they don’t have that state revenue, they begin to accrue those consequences a whole lot faster than a school district such as Lower Merion, for instance, that has a very significant base of wealth.”

Meanwhile, PPS is working on next year’s budget and how to address its chronic deficits, Joseph said. 

In his presentations to the board, Joseph has proposed millage increases, eliminating expenses, hiring freezes for non-essential positions, delaying expenditures by one to two years, and consolidating schools. Without changes, the district is on track to run out of money in 2027, according to a published report.

“We’re also eyeing that, should this continue going forward, you don’t want to pass a budget that’s assuming you’re going to get full revenue from the state if you’re not going to,” Joseph said. “So, [we’re] looking at how we might have to curtail some of our planned expenditures or programming in light of not receiving money at the state or federal level.”