By Emily Previti | Pennsylvania Capital-Star
Pennsylvania enters its fourth month of budget gridlock as the only state in the country without some kind of spending plan in place for the coming year. And now, the commonwealth faces the unprecedented collision of a budget impasse with the delay or suspension of billions in federal dollars due to the U.S. government shutdown.
“We are in uncharted waters,” said Annie Strite, mental health director for Cumberland and Perry counties. “It’s scary because we don’t know what we will need to cut. We don’t know how much revenue we’re going to have to work with.”
Pennsylvania reported spending nearly $45 billion in federal funding in the most recent state audit for the 2024 fiscal year.
That included about $3.6 billion in COVID-19 pandemic relief – the expiration of which already had provoked warnings from public finance experts well before lawmakers deadlocked over finances in Harrisburg or Washington.
The commonwealth’s other federal funding totaled about $41 billion for the fiscal year that ended in June 2024, a Pennsylvania Capital-Star analysis shows.
Of that, about $5.2 billion was federal pass-through money – meaning it’s already marked for counties, school districts and other recipients. The funding isn’t subject to state discretion; however, the commonwealth must appropriate at least some of it via the state budget.
Does that mean federal funding also stops flowing through the state during a budget stalemate? Not necessarily – at least, not all of it.
Federal funding flow
It’s complicated to precisely track how much federal funding some recipients (including local government units like counties and schools) might’ve been losing out on in recent months due to the state budget impasse.
There are a few reasons for that.
First, the commonwealth must continue to make certain payments during a state budget impasse.
And federal funds comprise a large share– between 30 and 42 percent annually during the last decade – of state general fund revenue, according to a Capital-Star analysis of state budget data.
But the breakdown of state vs federal funds often isn’t clear to recipients. That’s because federal appropriations often “cannot be analyzed in isolation from state funds necessary to support a program or project,” according to state budgeting guidelines.
And there are inconsistencies in how the commonwealth handles federal funds during a state budget standoff, according to Snyder County Commissioner Joe Kantz.
“I’ve gotten a lot of mixed signals,” Kantz said. “Some people are telling us they can release federal funds. Some say they can’t. Some say they can choose what funds they can release. It’s frustrating, at best, because we just don’t know. I’ve been a commissioner long enough to remember [budget impasses] during Gov. (Ed) Rendell and Gov. (Tom) Wolf’s administrations. And there were different scenarios in each of those impasses that went on and on and on. In some of those years, federal funds were released – and in other years, they weren’t.”
The commonwealth’s Office of the Budget outlines certain funding (such as state worker salaries and Medicare) that should continue to flow. Yet the categories include some that would-be recipients say aren’t being paid as usual. Domestic violence prevention and survivor support funding, for example, is listed. However, organizations have received only one of multiple funding streams accounting for just 13 percent of revenues, according to Michael Waterloo, communications director for the Pennsylvania Coalition Against Domestic Violence (PCADV).
Urgent needs
Federal pass-through payments tend to make up a relatively small percentage of funding for recipients (i.e., municipalities, counties and school districts rely much more on property taxes and state funding).
As the state budget impasse wears on, smaller and smaller amounts matter more and more – especially for smaller entities or those with thin operating margins.
Nonprofit domestic violence shelters and rape crisis centers are examples. They’re not counted among the “essential” services protected by rules to continue payment during a state budget impasse, according to the PCADV.
“The federal money has been allowing centers to stay open. If we didn’t have a combination (of state and federal funds) … they’d be closed already,” said Jenna Mehnert Baker, public policy director at PCADV. “We are desperate for both budgets to pass, or at least one of them.”
Federal funding pays for specific needs, with some of them being urgent.
For example, domestic violence survivors who need to leave home quickly rely on rapid rehousing money from the federal Department of Housing and Urban Development funneled through the PCADV’s statewide network. That was $24 million last year for hundreds of households, according to Jennifer Beittel, the organization’s chief philanthropic and communications officer.
The scenario is particularly fraught in rural areas, where stretched law enforcement and health care deserts already leave programs without as much money to support survivors as might be available to agencies in more densely populated areas.
Similarly, rural programs typically lack funding alternatives (such as larger local governments or philanthropic foundations) to assist during an impasse or federal government shutdown, Mehnert Baker said.
Pennsylvania also isn’t among the 20 states where lawmakers can use a continuing resolution to keep spending according to the past fiscal year’s budget until they agree on a new one. The federal government can do that, too.
“It would be great if we could have that continuing resolution,” Mehnert Baker said. “We wouldn’t be in this situation.”
Senate Republicans say their proposal from August was an attempt to do so.
“That would have allowed state and federal funding to flow while all parties continue to discuss how to resolve our differences. The House could pass that bill at any time to prevent many of the negative consequences of the current impasse, if they so choose,” said Sen. Scott Martin (R-Lancaster) in a statement.
Martin and his colleagues have since advanced a proposal to forgive the 4.5 percent interest on loans the state Treasury announced last week for Head Start providers and counties.
How counties compensate
Some counties (Montgomery and Allegheny) say their federal pass-through money has been coming in as usual since the state budget impasse started. The lack of commonwealth funding is driving county leaders to act. They cut payments to contractors (Chester), furloughed workers (Northampton and Westmoreland), took on debt and missed would-be interest revenue earned on savings they’re dipping into. They’re also struggling to plan as they approach the end of their fiscal year Dec. 31.
York County has been going without about $3 million per month in federal pass-through money (in addition to another $5.3 million of state funds) during the impasse, according to President Commissioner Julie Wheeler.
The federal dollars cover services including lead abatement, emergency food assistance and programming for older adults. The county’s been using savings to keep them going so far – but that can’t continue indefinitely, Wheeler said.
“We’ll have to make a tough decision,” Wheeler said. “Either raising taxes to cover the gap or shutting down programs. Which is something, personally, I don’t want to see happen.”
Cumberland County’s community mental health services block grant hasn’t been paid since the impasse began. That’s a $600,000 annual award, or about $150,000 during the past quarter of state lawmakers’ gridlock, according to Mental Health Director Annie Strite.
“So far, we can continue services,” Strite said. “But it won’t be long before we need to make some difficult decisions. Other counties are already making those cuts.”
That first quarterly allocation should’ve happened around mid-August, but reimbursements are on hold for the 2025-26 fiscal year without a budget in place, noted Kyle Kopko, executive director of the County Commissioners Association of Pennsylvania (CCAP).
In Berks County, leaders noted the impasse’s effect on pass-through funding – which accounts for about 5% of its revenues versus about 26.5% from the state – might not be apparent yet.
There’s a lag of weeks, even months after funding is spent as reimbursements are processed and accounts reconciled, Berks interim Chief Financial Officer Laura Jones explained.
Berks has been using savings to make up for funding shortages, losing an estimated $75,000 per month so far in anticipated interest revenue, according to Jones.
Montgomery County’s in a similar situation: hanging on for now, but not without costs – which Commissioner Neil Makhija says they’re tracking closely.
“I haven’t heard of any indication that a budget is going to be passed,” Makhija said. “This is also the most frank [communication] that I’m now starting to hear from legislators in saying that. Whereas earlier in the budget season, it was thought that there was a deal on the horizon. I think we’re all surprised and disappointed that it’s come this far.”
Pennsylvania Capital-Star is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Pennsylvania Capital-Star maintains editorial independence. Contact Editor Tim Lambert for questions: info@penncapital-star.com.
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