SENATE DEMOCRATIC APPROPRIATIONS COMMITTEE REPORT ON THE FISCAL YEAR 2005-06 STATE BUDGET

 

GENERAL FUND 

            The enacted budget will expend $24.150 billion in 2005-06.  That is an increase of $1.1 billion or 4.8% over the enacted 2004-05 budget.  The highlights of this additional spending will be detailed throughout this report.  Tax revenues are estimated to increase by $660 million over the current year’s tax collections through natural growth. 

The final revenue surplus for the General Fund for the just completed 04-05 fiscal year was $442 million.  That extra tax revenue created a $377 million General Fund surplus to begin this current fiscal year.   

 

Items in the Tax Bill HB 176 

1. Change in sales tax for car dealers who use as demos vehicles originally purchased for resale.  The cost to Commonwealth is minimal.  Department of Revenue believes current practice is confusing.

2. Allows for irregular deferred income to be untaxed until the income is received by the wage earner.  This is the item that caused the tax bill to be vetoed last November.  This language is different from the language in the November bill which the Department said could cost $40 million or more.  This has a $15 million cost but now the Administration says that revenue is not in their revenue estimate so the cost has already been accounted for in the budget.

3. Creates a new PIT checkoff for military families.  The Department of Military Affairs would administer the funds for distribution to the families.

4. Sunset for all of the PIT checkoffs.  The checkoffs for breast cancer, wild resource conservation, organ donation and Special Olympics would sunset at the end of 2008.  There is no cost to the Commonwealth.

5.  Conforming the schedule of the estimated PIT payments that trust funds must make to the Federal rules.  The provision is sought by the bank lobbyists.  Revenue says the cost is a one time cash flow loss of $1.8 million in the 2006-07 fiscal year.  The effective date of this provision is July 1, 2006.

6. The fine for filing a false PIT informational return is raised from $50 to $250.  Informational returns are required when the Department thinks that an individual may be liable for Pennsylvania taxes and they want additional information to make that determination.

7.  Removing stock exchanges from being a taxable corporation under the CNI and Capital Stock tax.

8. State collection of delinquent local RTT.  This is an optional collection of only delinquent RTT tax, penalty and interest.   The interest and penalty for local RTT would be the same as the state would collect.  The Department could keep up to 10% for their efforts.  Apparently there is much difficulty collecting the RTT in Monroe County.  There is no cost to the Commonwealth from this proposal.

9. Allows subchapter S corporations to determine whether any unused R&D credit is to be used by shareholders or kept for future use by the subchapter S entity.  Currently the R&D credit automatically passes to shareholders once the entity’s tax liabilities are eliminated.  There could be some slight savings from this provision since it slows down how quickly the credits are used.

10. Fixing of the film tax credit to remove prorating of the credit if more than the limit of $10 million is applied for.  The credit would be awarded on a first come first served basis.  The Department of Community and Economic Development would administer the credit.

11. Creates a penalty for paying taxes with an electronic fund transfer with insufficient funds.  The penalty would be the same as for paying with a bad check – a maximum of $1,000.  The amount of the penalty had been $500, but this proposal raises the penalty to $1,000 for either offense.  Also the Department of Revenue would be allowed to file tax liens electronically.  These two provisions would increase Commonwealth revenue slightly.

12. The Commonwealth would also be able to add a fee for the collection costs of back taxes when the Department uses a private collection agency.  By allowing the cost of the collection effort to be charged to the taxpayer it will insure that the Department receives the entire amount due net of the collection costs.

 

LOTTERY FUND 

            Ticket sales are expected to grow by 5.8% for 2005-06.  That would match the growth that was achieved in 2004-05.  Prior to Pennsylvania joining the Powerball multistate game ticket sale growth was usually around 2% per year.  The fund’s expenditures are anticipated to grow by about $95 million which would be an 8% growth rate over the current year. 

            The amount transferred to PACE is expected to grow by $30 million to $400 million.  What is noteworthy about the Lottery’s GGO is not the proposed amount, which is $57 million a 1.6% decrease from last year, but that the money will come completely from the Lottery Fund and not a split between the General Fund and the Lottery Fund as it has for the past 2 years.  Due to the increased ticket sales from the Powerball game the Lottery is now healthy again and the general government operations will be paid for by the Lottery Fund.   

            This change will result in a $27 million increase in the Lottery Fund’s expenditures this year.  Also $7 million that had come from the General Fund for Nursing Home Pre-admission assessment will now be funded by the Lottery Fund and another $3 million will come from the Lottery Fund for capital improvements to senior centers throughout the state.  Senior citizen fixed transit will also be paid for out of the Lottery Fund for the first time.  This will cost the fund $16 million. 

 

MEDICAL ASSISTANCE

Governor's Plan •  Prescription Drug Limits •  Inpatient Hospital Limits •  Physician and Other Providers limits of 18 visits per year •  Short Procedure Unit Limits •  Ambulatory Surgical Center Limits •  No Durable Medical Equipment costing more than $5000 •  Hospital Pass Throughs – Medical Education, Community Access, Outpatient Disproportionate Share, and Uncompensated Care unavailable to hospitals with a 1% operating margin. •  Outpatient Psychiatric Visits limited to 5 per month •  Partial Hospitalization limited to 540 hours per year •  Inpatient Psychiatric Hospital care limited to 30 days per year •  Prescription Drug Payment Methodologies •  Preferred Drug List •  Premiums for Loophole Kids based on a sliding scale relating to family income and family size. •  No limitation on how often or how frequently a person could change medicaid managed care plans •  No statutory obligation for the Department of Public Welfare to perform eligibility redeterminations more than once a year

Budget Agreement •  No Prescription Drug Limits •  No MA-Adult Inpatient Hospital Limits & 1 visit for Gen Assistance patients, but with a liberal exceptions policy. •  18 visit limit for the physicians and others retained •  No Short Procedure or Ambulatory Surgical Center limits •  No dollar limit on Durable Medical Equipment •  Hospital Pass Throughs retained in their entirety. •  The limits on Outpatient Psychiatric Visits, Partial Hospitalization and Inpatient Psychiatric Care are adopted. •  Prescription Drug Payment Methodologies are adopted with one small change relating to Brand Name Drugs •  Preferred Drug List will be used for Fee for Service and Managed Care with the provision must consider the potential destablizing effect on the recipient's health by a change in a drug regimen. •  The amount to be saved from Loophole Kids Premiums is reduced in an aim to reduce premiums for families with incomes between $40,00 and $150,000. •  Legislation with limit change of plans to once each 12 months with some exceptions •  Re-determinations will have to be made every six months for most cases.

 Rate Increase 

•     Health Choices rates must be actuarially sound.  It is expected that the range set by the actuary will be between 2% and 6%.  The department will select the lowest rate allowed.

•     Hospital Rates will be increased 2%

•     Nursing Home Rates will be increased 3%.

 

 

TOBACCO FUND/ADULT BASIC 

            Tobacco Settlement payments are decreasing by approximately 2% per year due primarily to reduced tobacco usage.  At the same time, some programs supported by the fund have increasing costs due to increased caseload and higher unit costs.  The programs that are most affected by declining revenues are the Adult Basic Insurance program and Medical Assistance for Workers with Disabilities (MAWD) which currently share 30% of the revenues.  

 The Governor proposed a number of changes to the Tobacco Fund which would provide 5% for MAWD and 32% for Adult Basic.  Among those changes was the reduction in the support for research and for Prevention and Cessation. 

            In addition to the changes proposed in the Tobacco Fund, the administration has entered into agreements with the four Blue Cross/Blue Shield  plans that provide for the creation of fund established by a 1.6% charge on commercial premiums and a 1% charge on medicaid-medicare premiums.  From that total amount, each company can deduct state taxes attributable to those lines of business.   

            For the four plans the total amount created is approximately $145 million.  60% of that amount is to be transferred by the Blues to the Department to be used to support health insurance for low income people, with the understanding that it is not to be used to prop-up medicaid.  The original plan was to apply this $85 million to Adult Basic, increasing the caseload by approximately 30,000 persons.  The Agreement is for six years.  

            The Republicans have strenuously objected to method by which the Governor made these agreements and have wanted to participate in the use of the money.  At the same time, the Blues do not want these funds to substitute for medicaid funding.  

            A compromise has been reached, partially due to budget exigencies, which makes the receipts from the Blues agreement a restricted account in the Tobacco Fund.  In addition, for the current fiscal year, Prevention and Cessation support in the Tobacco Fund has been reduced from 12% to 9%.  Those savings and all interest and earnings of the Tobacco Fund and the Endowment Fund will be transferred to the General Fund for Health Purposes. As the result the following will occur: 

• The number of persons in Adult Basic will increase from approximately 35,300 to 44,205 instead of decreasing to 28,650 under current law and arrangements.  The increase in the number of participants will occur despite the increase in cost per person of 8%.

• The General Fund will receive $72 million which will support the Long Term Care appropriation.  Included in that appropriation is an additional $9.2 million for Home and Community Based Services.

• Although Tobacco Prevention and Cessation funding will be reduced by 25%, the proposed reduction in research funding from the Tobacco Fund was eliminated.

 

EDUCATION 

            Funding for the basic subsidy will be increased by 3%.  Special education and vocational education programs will grow by 2.5%, while targeted initiatives will provide an additional $43 million in new funds to local school districts. 

            The increased funding will continue to reverse a trend of declining support for public education that had continued for more than 25 years in the commonwealth.  Two years ago Pennsylvania ranked 49^th among our 50 states in school funding equity with state funds accounting for only about 34% of the annual costs for our public education system in Pennsylvania.  More recently, this state share has increased to about 37% of school district expenditures. 

            The basic subsidy increase of $129.5 million includes a $22.3 million foundation component targeted to low spending school districts.  School districts with current expenditures below $8,500 per student would receive additional supplements, with increased subsidies based upon the relative wealth and tax effort of the school district.  Additional supplements are provided for growth, high tax effort, limited English proficiency, and small districts.  Total basic subsidy spending would grow to nearly $4.5 billion. 

Targeted Initiatives 

            The budget provides $200 million for the Accountability Grant program.  That would maintain funding at the current year level.  New initiative funding will include $30 million in state funds to supplement Head Start, a $15 million increase, and $66 million for tutoring programs, a $28 million increase.  Together the increases provide an additional $43 million for early learning and remediation initiatives. 

            School districts have the flexibility to choose from a menu of eligible uses for the Accountability Grant program.  These options include support for pre-kindergarten, full day kindergarten, and reducing class sizes during the early grades, as well as tutoring and other remediation and educational improvement programs.   During their first year of implementation school districts allocated more than two thirds of their Accountability Grants for early leaning programs. 

Other Public School Funding 

            New initiatives will include $10 million in professional development funds to improve achievement in struggling school districts, $5 million for dual enrollment programs for high school students seeking course work at higher education institutions, and $4.7 million to further enhance the rigor of high school curriculums.  Other significant spending increases for public education programs would include a $5.3 million increase in Pupil Transportation reimbursements, $25.6 million to cover the state share of rising retirement contribution costs, a $5.8 million increase for early intervention services and a $12 million increase for charter school reimbursements.

 Aid to Nonpublic Schools 

            Funding for Nonpublic education providers will also be increased by 3% in the budget.  This support will include $79 million for services and $24.16 million for text books, materials and equipment.  Non Public and Charter School Pupil Transportation will be reduced by $2.6 million.

            Appropriations for Special Education at Approved Private Schools and PA Charter Schools for the Deaf and Blind will both be increased to fully fund the formula driven allocations for all schools.  Additional school code language was  enacted to insure implementation of last year’s formula funding agreement, guaranteeing annual allocation increases based upon 125% of the increase in prior year special education expenditures.  The budget includes an additional $3 million for the reconciliation of prior year audits.  Unspent funds from the prior year will also provide nearly $2 million in additional funds to be transferred to the audit resolution fund. 

School Construction 

            Authority Rentals and Sinking Fund Requirements will be increased by $2 million above the Governor’s request.  The additional funds will be necessary to fully fund increased state reimbursements enacted with the budget.  The school code changes will increase state reimbursements for school construction projects for the first time in 18 years.  Current building reimbursement limitations would be increased by slightly more than 20%.  New 10% reimbursement incentives would be created for renovation projects, the use of prototype designs, and designated green buildings.  The increased reimbursement formula will apply retroactively to projects approved on or after January 1, 2005.

Library Services 

            The Library Services program supports and improves state and local library services and ensures access to these services.  The budget includes a total of $61.4 million, a 6% increase over the prior year.  This represents an overall restoration of 82% of the amount libraries received in FY 2002-03 when the library appropriation was at its highest level.

 

ENVIRONMENTAL PROTECTION 

            Under the FY 2005-06 spending plan, General Fund support for the Department of Environmental Protection would fall by more than $20 million from current year levels.  If special fund expenditures are included, however, overall DEP spending would actually increase by over $35 million, to a total of $660.8 million.  The difference between these two figures is almost entirely attributable to the passage of Growing Greener II. 

            The administration’s original proposal contained a number of reductions and outright eliminations within DEP’s General Fund appropriations.  The line items for the Cleanup of Spare Tires ($6.8 million in 04-05, $2.75 million Appropriated 05-06), Black Fly Control and Research ($4.4 million 04-05 and 05-06), Safe Water ($7.5 million for both 04-05 and 05-06), and all were reinstated.   Nutrient Management ($0.25 million), the Susquehanna River Basin Commission ($1.2 million for both 04-05 and 05-06) and the Northeast-Midwest Institute ($0.06 million) were eliminated under the Governor’s proposal and were no funded as part of the budget.  The budget also contains significant cuts for General Government Operations (5%) and the Sea Grant Program (20.0%).  The Environmental Program Management line item was reduced by 3.3%, to $37.049 million. 

            The only major increase in DEP’s General Fund appropriation is the additional $2.0 million slated for Environmental Protection Operations, although the spending plan also contains another $173,000 for Chesapeake Bay Agricultural Source Abatement.  

Growing Greener II 

The Growing Greener II proposal distributes the entire $625 million in voter approved bonds to the Departments of Environmental Protection, Conservation and Natural Resources, Community and Economic Development and Agriculture and the Fish and Boat and Game Commissions for acceptable environmental programs and grants that are with some exceptions, the same ones that were allowed in Growing Greener I. 

The bond proceeds will be distributed as shown in the table below: 

Bond Proceeds	$625,000,000
DEP	$230,000,000	36.8%
DCNR	$217,500,000	34.8%
Agriculture	$80,000,000	12.8%
DCED	$50,000,000	8%
Fish and Boat	$27,500,000	4.4%
Game Commission	$20,000,000	3.2%

The differences between the projects allowed under Growing Greener I and II are: 

1.                             Under DEP advanced energy projects done by PA Energy Development Authority, brownfield remediation projects and geological hazards. 

2.                             All of the projects under DCED which are to include existing community redevelopment and housing programs under their direction and also under the PA Housing Finance Authority. 

3.                             The monies to the Fish and Boat Commission for capital improvements to existing land and facilities. 

4.                             The monies to the Game Commission for capital improvements to existing land and facilities. 

An amount of $90 million will be available to the counties for their discretionary spending on projects that qualify as environmental projects within the criteria set for the above Departments.  The Department will have approval over what projects will be funded.  Counties must continue any environmental spending they have been previously doing.  The county block grant will be distributed based on the county’s class.  The breakout is as follows: 

County Type	Total Grants for County Type in Millions	Amt per County in Millions	Avg per year
First, Second, Second A	$13.50	$2.70	$450,000.00
Third	$19.90	$1.75	$291,667.00
Fourth, Fifth	$21.53	$1.39	$231,667.00
Sixth, Seventh, Eighth	$35.14	$1.00	$166,667.00

 

There are no new fees proposed in this legislation but the existing $4 tipping fee is redistributed to provide $30 million to the Hazardous Sites Clean-up fund in 2005-06 and $30 million in 2006-07.  The money needed for payment of the debt service is also to come from the existing tipping fee.  Once all the bonds are sold the cost of debt service is expected to be about $55 million annually.  If there is a sales tax holiday for energy efficient appliances and a tax credit for historic home preservation the money to pay for those will be reimbursed to the general fund from the tipping fee.  The tipping fee was slated to sunset in July of 2012 and that sunset is repealed so that the funds will be available to repay the bonds. 

 

DEPARTMENT OF AGING 

            The budget transfers $9.8 million of those General Government Operations costs relating to PACE claims processing, from the General Fund to the Pharmaceutical Assistance Fund, funded from lottery revenues.     

Family Caregiver Support Program 

The budget provides for the continued general fund appropriation for the Family Caregiver Support Program at the prior year’s appropriated level of $11.5 million.  This program is also supported by $10 million in federal funds.  The program assists families who maintain frail relatives in their home.  Working through AAA’s, the program provides benefits counseling and, depending on income, financial assistance including supplies, services and home adaptations and devices.  It is anticipated that 5,200 families will receive these services in 2005-06. 

Alzheimer’s Outreach Services 

The budget includes $250,000 for Alzheimer=s Outreach Services.  Federal funds used for Memory Loss programs are anticipated to decrease by 33%. 

Pre-Admission Assessment 

Funding for the Pre-Admission Assessment Program is increased by 19.2% for a total of $7.3 million.  This nursing home pre-admission screening program helps older Pennsylvanians and their families determine the least restrictive environment needed and assists them in securing and managing intensive in-home services tailored to their needs. It is anticipated that assessments and referrals to nursing homes and community services will increase in 2005-06. 

PENNCARE

This budget contains a $6 million increase in the lottery funded PENNCARE appropriation to continue the current Attendant Care Program and provide services to an additional 136 recipients.  Funds are also used for Older Adult Protective Services to investigate suspected elder abuse reports.  The increase will also be used to provide a 2% cost of living adjustment for direct care workers and to fund a Falls Prevention Program. 

Home and Community-Based Services 

A total of $20.5 million in Tobacco Settlement funding is included in the budget to provide home and community-based services to older Pennsylvanians ineligible for the Federal Medicaid Community-Based Waiver Program because they exceed the personal asset limit.  Program participants are required to share in an average of 50% of the cost of services.   

PACE and PACENET 

The Pharmaceutical Assistance Program provides help to qualified older Pennsylvanians who are 65 years of age and over and whose cost of drugs is a burden to them.  The program is financed by the Lottery and Tobacco Settlement Fund revenue.  For fiscal year 2005-06, the transfer of $400 million in Lottery funds and $32 million in Tobacco Settlement funds will provide assistance to 316,400 older Pennsylvanians.  It should be also noted that the cost per prescription is expected to increase as is the number of prescriptions per person. 

The PACE program is for older Pennsylvanians whose annual income is at or below $14,500 for single persons and $17,700 for married persons.  PACE pays the entire cost of the drug after a mandatory copayment of $6 for generic and $9 for brand-name prescriptions is made.  The PACENET program is available for older Pennsylvanians whose annual income is between $14,500 and $23,500 for single persons and between $17,700 and $31,500 for married persons.  PACENET pays the entire cost of prescription drugs after a claimant meets a $40 per person per month deductible and a mandatory copayment of $8 for generics and $15 for brand-name prescriptions.  The $40 deductible is cumulative if it is not met each month. 

Act 37 of 2003 provided for an expansion of the PACE and PACENET eligibility criteria, making more than 100,000 additional individuals eligible for enrollment.  In addition, cost containment initiatives were enacted which will help to support the enrollment and prescription cost and use increases.  As of May 2005, 191,186 seniors were enrolled in the PACE program and 98,668 seniors were enrolled in PACENET.   Act 219 of 2004 allows for PACENET enrollees to maintain their current level of coverage if the March 2005 Social Security COLA puts them over the income limit.   

The Federal Medicare pharmacy program which will go into effect in January 2006, is expected to result in savings to the lottery fund for 2005-06 as much as $94 million.  It is estimated that as many as 80,000 PACE enrollees will be eligible for the Medicare Low Income Subsidy and a Part D plan.

 

DEPARTMENT OF AGRICULTURE 

The Governor requested $2.1 million for the Agriculture Research program for the 05-06 state fiscal year.  However, the recently approved budget provides $3 million.  This appropriation provides for research performed at Penn State University and the University of Pennsylvania.  The research conducted at the universities examines problems facing animal and plant agriculture to protect agriculture’s economic vitality. 

The Pa. Animal Health Commission for the 05-06 fiscal year will receive $5.25 million.  Basically this is the same level of funding as in the available year.  This appropriation provides funding for laboratories that provide animal health services for domestic animals with an emphasis on infectious, nutritional and toxic disease.  The Commission conducts surveillance to detect emerging diseases and detecting biological chemicals that pose a threat to Pennsylvania’s agriculture community as well as the entire population of the state. 

Found within the new budget is an appropriation of $4.4 million for the 05-06 fiscal year to provide grants to counties that conduct Pennsylvania fairs.    The Pennsylvania Fair programs assist various counties to hold fairs that showcase that county’s agriculture products and handiworks.

The 05-06 budget will fund $18 million for the Pennsylvania State Food Purchase program.  In the available year (04-05), this appropriation received $17.45 million.  The state funds leverage federal funds to help Pennsylvania’s indigent who need food.  The Pennsylvania’s food banks are direct recipients of this program. They allocate food reserves and funding to the people of Pennsylvania located within certain regions of the state where the food banks exist.

 

COMMUNITY AND ECONOMIC DEVELOPMENT 

            Continuing efforts to stimulate economic growth in the commonwealth are demonstrating measurable success, as our state economy continues to strengthen.  A state revenue surplus of nearly $450 million was buoyed by personal income and business tax receipts that significantly exceeded estimates during the past fiscal year.  Establishment employment continues to rise, reaching a four year high of nearly 5.7 million jobs, while unemployment has fallen to 4.8%, significantly below the national average.

            Last Spring the General Assembly enacted the Governor’s $2 billion Economic Stimulus package.  As the newly created Commonwealth Finance Authority (CFA) continues to implement this package of programs, the new budget includes only modest additional initiatives for community and economic development spending.  Given limited fiscal resources, the budget insures ongoing support for vital economic incentive programs, while modestly increasing several community development initiatives. 

Business Financing Programs 

            The state’s major business financing programs are all funded at or near current year levels including $49 million for the Opportunity Grant Program, $30 million for Customized Job Training, $22.5 million for Infrastructure Development, and $50 million for the Ben Franklin Technology Development Authority Fund.  These commitments, combined with other special fund resources, will provide more than $400 million for business and technology development.   

Community Development 

            The new communities appropriation was reduced to $18 million, a $1 million decrease from the current year.  Housing and Redevelopment Assistance is maintained at $30 million in the final budget agreement.           

Economic Stimulus Legislation 

            The Commonwealth Financing Authority (CFA) has currently approved nearly $140 million in Business in Our Sites projects, more than $6.5 million for First Industries projects, and nearly $40 million for PENNWORKS water and sewer infrastructure assistance.  The selection process for hiring venture capital fund managers will begin this month.  The CFA’s first bond financing is expected later this month to support the stimulus program initiatives.  Authorizing legislation restricts the authority from issuing more than $250 million each fiscal year.  The budget provides $8.294 million for debt service during the 2005-06 fiscal year.

            Following is a summary of the programs funded through the economic stimulus package. 

New Ventures Investment Guarantee Program - $250 million

     This program will provide up to $250 million in guarantees to venture capital partnerships.  The guarantees would apply to the first 50% of principal invested in qualifying Pennsylvania companies.  Up to $50 million of these guarantees could be invested with SERS or PSERS as a limited partner. 

Direct Venture Capital Investments - $60 million

     A second venture program will contract directly with Pennsylvania Investment firms to invest as much as $60 million in bond proceeds through venture capital managers.  This program would target a minimum of 50% of these venture investments outside of the Pittsburgh and Philadelphia regions. 

Real Estate Acquisition and Development Program – $150 million

     This program will authorize $150 million in bond proceeds to be invested by professional fund managers in gap financing for real estate projects throughout the commonwealth.  The investments could include industrial, commercial and multi-use projects. 

Business in Our Sites Program – $300 million

     This program provides grants and loans for site preparation and development for future private investment.  Up to $300 million would be provided to municipalities, related authorities, or other local economic development organizations.  Grants for predevelopment planning and feasibility studies would not exceed $10 million in total funding from the program.  As much as $100 million could be committed for grants through the program. 

TIF Loan Guarantee Program – $100 million

     This program will provide up to $100 million in loan guarantees to encourage tax increment financing throughout the commonwealth. 

The Pennsylvania First Industries Program – $150 million

     This program will provide comprehensive financing of up to $150 million through loans, loan guarantees, and grants to businesses involved in production agriculture up to $100 million, while providing an additional $50 million for tourism. 

Keystone Innovation Zones -  $10 million, $25 million tax credit program

     KIZs will be established near higher education institutions to encourage new development opportunities through local partnerships with area business.  DCED will offer priority funding through department programs, and provide operating grants of as much as $250,000 per zone to hire a coordinator and administer zone programs.  A companion tax credit program would provide $25 million in annual tax credits to firms between 2 and 7 years old operating within the zones. 

Core Industries Programs – $75 million

These funds will capitalize the Machinery and Equipment Loan Fund (MELF) to allow the maximum loan ceiling to be raised to $5 million and fund a special loan program to aid hospitals with FDA required pharmaceutical management technology.  

Secondary Stage Financing – $50 million

     This program will provide relatively small working capital loan guarantees to small businesses to encourage private financing for manufacturing, high tech and other growth industries.  The guarantee could apply to as much as $1 million or 50% of the amount being financed, whichever is less.   

Water and Sewer Capitalization Program – $250 million

     This program will authorize $200 million in financing for water and sewer infrastructure projects.  As much as $100 million of this total could be grants.  The program, administered through the CFA, would be established to fund municipalities or municipal authorities to improve or construct water and sewer facilities related to an economic development opportunity.  An additional $50 million in water and sewer financing will be authorized through Pennvest. 

Redevelopment Assistance Capital Funding – $700 million

     This initiative raised the cap on Redevelopment Assistance capital funding to $2.15 billion, a $700 million increase.   The Governor has announced nearly $500 million in new Redevelopment Assistance commitments since taking office.

 

CONSERVATION AND NATURAL RESOURCES 

The budget includes a $2.0 million decrease for the General Government Operations line item, which would fall to its lowest level since the 2001-02 fiscal year.

 The appropriation for State Parks Operations is decreased $74,000.   State Forests Operations is cut by roughly $400,000.  It is worth noting that the administration is expecting state park user fee revenue to slip by nearly $1.9 million from the $16.2 million forecast for 2004-05.  If only a quarter of this decline should fail to materialize, then overall funding for state park operations is likely to remain at or above 2004-05 levels. 

General Fund support for Heritage and Other Parks receives a $2.4 million increase. 

Since the last of the Key 93 bonds were issued in FY 1997-98, the Keystone Recreation, Park and Conservation Fund’s revenue has almost exclusively come from a dedicated portion of the Realty Transfer Tax.  Funds from this source were expected to decrease by 5.5% in the current year, to $73.5 million.  On the expenditure side, this would translate into an $11.2 million reduction in DCNR’s share of overall Key 93 spending, which the department uses for parks, local recreation, and grants to land trusts.  However, Key 93 lapsed tens of millions of dollars from 2004-05 into the new fiscal year, therefore the administration’s anticipated reduction will not occur. 

Under Growing Greener II, DCNR is slated to receive $217.5 million or 34.8% of the bond proceeds.  Of this amount $100 million must be used for state park and forest improvements, and $90 million must be used for open space conservation.  A portion is set aside for grants for counties, municipalities, council of governments, conservation districts and authorized organizations for the purposes of:   planning, education, acquisition, development, rehabilitation and repair of greenways, recreational trails, open space, natural areas, river corridors, watersheds, community and heritage parks and recreation facilities; community conservation and beautification projects; forest conservation; and other conservation projects.

 

CORRECTIONS 

            State spending for the Department of Corrections will reach $1.35 billion, an increase of $7.8 million, or a 1.7% increase from the 2004-2005 fiscal year.   

The SCI appropriation has decreased by $2.5 million for 2005-2006 fiscal year, despite the fact that most of the institutions are at maximum capacity.  The inmate population is the single most important factor that affects cost in the correctional system.  The offender population had reached 40,965 inmates by the end of December 2004.  It is forecast that the inmate population will slightly grow in 2005 to 41,628 or a growth of 1.6% (665 inmates).  When factoring in the cost of inmate health care, education and training expenses, the current average cost per inmate is $29,900. 

            The Medical Care appropriation enacted for fiscal year 2005-2006 is $182 million, essentially parallel to the Governor’s February proposal.  Furthermore, the Inmate Education and Training appropriation received an increase of $4.5 million from the 2004-2005 fiscal year for a total appropriation in fiscal year 2005-2006 of $42.4 million. 

 

PROBATION and PAROLE 

            The Department of Corrections works with the Board of Probation and Parole to operate alternative supervision programs.  Probation and Parole spending will total $ 99.9 million in the 2005-06 budget, which is an overall increase of approximately $2.3 million from last year.  The State Parole population is projected to reach approximately 29,258 offenders by the end of the upcoming fiscal year, which is an increase of over 2,400 new offenders on parole. 

In the enacted 2005-06 budget, the General Government Operations appropriation received an increase of approximately $4.3 million or 6% above the Governor’s 2004-05 enacted budget.  The Sexual Offenders Assessment board remained at the Governor’s February budget proposal of $3.2 million.  However, the Adult Probation services appropriation decreased by $1.9 million from fiscal year 2004-2005. 

 

HIGHER EDUCATION INSTITUTIONS 

Community Colleges 

The budget increases community college funding by nearly $23 million, or 10 percent. This includes $252.1 million for 2005-06 and an additional $1.8 million in a supplemental appropriation for 2004-05 for  capital leases and debt service payments.  In addition, the budget also creates a new way of funding community colleges, by providing predictable revenue to community colleges to support their operations.  It changes the way workforce development funds are used by targeting resources to create career opportunities.  The Governor, under his “Job Ready Pennsylvania” initiative, emphasized placing greater emphasis on incentives to develop and offer courses in well-paying, high demand occupations.  Additionally, each community college will report to the Department of Education on key performance measures which will help the state evaluate community college student success.   

            Capital funding will also increase dramatically as a result of this year’s budget.  A Community College Capital Fund is established for funding approved capital projects.  The fund will contain nearly $38 million, a 15 percent increase in capital funding from the prior year.