July 1, 2002

TO: Members, The Philadelphia Delegation

FROM: Senator Vincent J. Fumo,

Chairman, Senate Democratic Appropriations Committee

SUBJECT: Impact Analysis of the Enacted FY 2002-03 General Fund Budget on the City of Philadelphia

The $20.7 billion General Fund budget for the 2002-03 fiscal year, as enacted by the General Assembly, generally follows the budget allocations for 2001-02, and represents a 0.4% reduction in spending from the prior year.

Among the budget’s tax reductions is an initiative to increase the income limits for full tax forgiveness for the Commonwealth’s poorest citizens. This is a $12.4 million item. The Sales and Use Tax holiday on Personal Computers, which was expanded in 2001-02 to include other miscellaneous computer peripherals, has been discontinued in the final budget for 2002-03. Additionally, the spending plan only calls for a one-quarter mill reduction in the Capital Stock and Franchise Tax, as opposed to the one mill cut that had been anticipated.

Although the 2001-02 budget contained an initiative purportedly designed to implement direct care worker recruitment and retention, this measure does not appear in the final 2002-03 spending plan.

In the City of Philadelphia, state funds for aging services are allocated to the Philadelphia Corporation on Aging. Services include nutrition, employment, transportation, domestic care, personal protection, long-term care assessment and both basic and intensive in-home services. The Philadelphia Corporation on Aging may reasonably expect to receive approximately $45.9 million for fiscal year 2002-03 in the budget.

The PennCare appropriation now includes programs to expand adult day care services, which previously fell under a separate line item. Philadelphia will also be eligible for additional funding for in-home services as an alternative to nursing home care under the Tobacco Settlement. It should be noted that combined with available Federal and State general funds, the Philadelphia Corporation on Aging would receive roughly $69.4 million in the 2002-03 fiscal year.

As with previous budgets adopted during the Ridge/Schweiker Administration, the 2002-03 budget provides little support for higher education. Of all the universities in Philadelphia, the enacted General Fund budget only increases funding for the Community College, the Osteopathic College, and the University of Pennsylvania. Temple, the only Philadelphia state-related university, will be eligible for a portion of the Higher Education Technology Grants. Not only has the funding level for Technology Grants been reduced by $1 million, but the Higher Education Graduation Incentive line item has been discontinued entirely in 2002-03. After an allocation of $2 million in the prior fiscal year, the initiative for workforce development has also disappeared.

The budget contains a 1.2% increase in the level of state funding support for the general operations of the Community College of Philadelphia. As a result of past state funding shortfalls, however, the school may be forced to increase student tuition rates. The Community College of Philadelphia continues to receive fewer dollars per student, both in operating revenue and total revenue, than any other community college in the Commonwealth.

The final budget agreement provides a special line item appropriation of $25 million for the Philadelphia School District. The budget contains an increase of $26.6 million in the basic education subsidy for the district. The district will also benefit from $29.7 million in charter school reimbursement funds and a $1.8 million increase in the reimbursement for non-public transportation. Overall, this amounts to an $83.1 million increment above the 2001-02 fiscal year.

The Philadelphia School District will receive $105.6 million in funding for special education for fiscal year 2002-03. This represents a $1.6 million or a 1.5% increase over the prior year.

The 2002-03 fiscal year budget does not include an increase in the basic Mass Transportation subsidy. Philadelphia will receive an estimated $187.1 million of the Mass Transportation subsidy, unchanged from 2001-02 funding levels. It does, however, provide for an additional $2 million line item for Regional Mass Transit Planning and Assistance, for further study of the proposed Schuylkill Valley Metro project. The enacted budget contains a $10.3 million increase for fixed route transit. Nearly all of this appropriation, $24.8 million of the $27.8 million total will be used to supplement the Lottery Funded Free Transit program.

The lack of significant new transportation funding is exacerbated by a continuing bleak forecast for Utility Realty Tax/Gross Receipt Tax (URT/GRT) collections from the Public Transportation Assistance Fund (PTAF). In the current fiscal year, URT/GRT collections are expected to fall below $20 million. Although the Governor projected that this figure would increase to $32.5 million in 2002-03, collections will likely fall below the prior year. The budget funds all transit commitments promised as part of the 1997 gas tax deal.

Every October, the Department of Revenue distributes checks to municipalities and school districts from PURTA tax revenue collected in the previous fiscal year. In 1999, the PURTA tax was "fixed" to provide a reliable tax collection stream. In 2000-01, $60 million of revenue was distributed from PURTA collections. This figure fell to $48 million in the following year. The enacted budget recognizes that PURTA revenues will continue to decline, estimating that PURTA collections in 2002-03 will fall to $36.3 million.

Not only does the 2002-03 fiscal year budget fail to provide any additional funding for AIDS or Maternal Child Health programs; it also cuts spending on drug and alcohol treatment by 1.75% on a statewide basis. As a result, Philadelphia can also expect to receive a slight decrease in funding.

The 2002-03 fiscal year budget includes a 0.9% increase in state funding for the city's adult probation initiatives.

The 2002-03 fiscal year budget increases the level of funding to PennPorts by 19.7% from the current fiscal year, to $14.1 million. This amount is provided through the Department of Community and Economic Development. It is not yet clear how the increased appropriation will impact the three ports that are funded through this grant.

The 2002-03 fiscal year budget calls for a decrease of $3.0 million for Housing and Redevelopment assistance from current year levels. It is important to note that an additional $30 million in TANF funding will be used for housing projects to be funded through the Pennsylvania Housing Finance Agency, from which Philadelphia should expect to receive a significant share. This program will be entering the final year of a two-year commitment.

The 2002-03 fiscal year budget again will not include any funding for HEMAP, which offers loans to homeowners who have fallen behind in monthly payments due to unemployment or family medical emergency. Since its inception in 1983, over $45 million in HEMAP assistance has gone to Philadelphia homeowners. The General Fund appropriation for HEMAP was eliminated in 1998, causing participation to fall off dramatically. Despite the program’s diminishing resources, the weak economy has caused applications for this program to increase every year since 1997. HEMAP has been forced to decrease not only the number of loans it grants, but also the size of these loans.

In December of 1987, the Supreme Court ruled in Allegheny County v. Casey that the local court system has been inadequately and unevenly funded by the General Assembly. When the General Assembly failed to act, the county commissioners association brought an enforcement action. In 1996, the Supreme Court appointed retired Justice Montemuro as a special master to submit a plan for implementation. He recommended a phased implementation beginning July of 1998.

The 1999-2000 fiscal year budget funded Phase I of the master’s plan, which moved 173 people to the State payroll. The 2002-03 fiscal year budget does not include funding for Phase II of the master’s plan, which would transfer all the court and minor judiciary staff as well as court reporters, data processing personnel, masters and administrative support staff. This had been expected to take place by July 1, 2000.

Additionally, legislation passed in November 2000, which added three additional Common Pleas judges for Philadelphia, increased the funding subsidy for Philadelphia by $325,000. Philadelphia will further benefit from a $600,000 Senior Judge Enhancement line item.