School districts statewide took out nearly $1 billion in loans to cover shortfalls caused by the state budget impasse, costing them a collective $40 million to $50 million in interest so far, according to state Auditor General Eugene DePasquale.
School districts and other county agencies dependent upon state funding got a temporary reprieve in late December, when Gov. Tom Wolf released part of the cash they were due for the first half of the fiscal year. As the stalemate enters its eighth month, some may have to seek new loans to cover the next half of the year, DePasquale said in a meeting with The Times Tribune’s editorial board Monday.
“They paid them for the first half of the fiscal year. Now moving forward ... they are back to not getting their money on a monthly basis,” he said.
Lackawanna County school districts took out $36.6 million in loans, DePasquale said. Of that, roughly $32 million went to the Scranton school district. The total interest charges on those loans was not immediately available Monday as his office has not broken out costs by district.
DePasquale said he began tracking costs in hopes it would put pressure on legislators and the governor to pass a budget.
“As the chief financial watchdog for the state of Pennsylvania, I knew there were going to be increased costs that no one was talking about. I said we’ve got to find out what that cost was,” he said. “It turned about to be higher than we thought.”
It’s not clear yet whether school districts and county offices will be able to recoup the cost of the borrowing. It’s possible the state may include funding to cover interest fees, DePasquale said. If not, there’s been talk that school districts and counties might sue to recover the money.
The impasse has also thwarted attempts to address municipal pension reform — a key issue DePasquale has lobbied for since he took office. A task force he headed issued a report in July suggesting several reforms, but no action has been taken on it as the budget debate has taken center stage.
“We got a commitment from the general assembly and the administration that once the budget was done, it would be at the top of the list. No one anticipated when that was said we would still not have a budget” in February, he said.
DePasquale warned some school districts and other agencies may face a “nightmare” if the stalemate continues as banks are losing confidence in the legislature’s ability to agree on a spending plan. That may make financial institutions less likely to offer loans or, if they do, they will come with a much higher interest rate.
“If you are a bank, this used to be automatic,” DePasquale said. “The state’s going to pass a budget and we will get our money back. Now can anybody really say we are guaranteed there will be a budget in the next year?”
“It’s become a much riskier loan,” he added. “I’m giving a nightmare scenario but that nightmare scenario is not beyond belief.”