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March 20, 2003

House, Senate OK budget; Rendell must act by March 22

The Pennsylvania House and Senate have approved Gov. Ed Rendell’s state budget, which proposes cutting Pitt’s state appropriation by 5 percent for the fiscal year that begins July 1.

Nonetheless, the 5 percent reduction isn’t a done deal yet, Pitt’s assistant director of Commonwealth, City and County Relations told the University Senate budget policies committee (BPC) March 14.

“We may end up getting hit with the 5 percent cut,” Charles F. McLaughlin said. “Or, the governor may veto this budget or part of it, and the picture might change.”

Rendell was expected to veto parts of his own $21 billion spending plan today (March 20), sending it back to the state legislature.

To understand why Pennsylvania’s new governor would reject a budget he proposed, a rehash of recent events is in order:

• Rendell unveiled his spending plan on March 4, meeting a deadline mandated by the state’s constitution to submit a balanced budget. That budget calls for cutting $1.6 billion in expenses to help close a projected $2.4 billion revenue shortfall. Hardest hit were state-supported universities (including Pennsylvania’s state-related schools: Pitt, Penn State, Temple and Lincoln), medical assistance programs, libraries and other publicly funded programs.

• Rendell urged legislators to delay voting on his budget until after March 25, when he plans to announce a follow-up series of initiatives for economic development, property tax relief and increased funding for schools. Tax increases probably will be required to fund the initiatives, Rendell has said.

• Ignoring the Democratic governor’s request and moving with near-record speed, the Republican-controlled House and Senate approved Rendell’s $21 billion spending plan on March 6 and 12, respectively. Voting was almost exclusively along party lines.

Republican leaders said that quick passage of Rendell’s initial, balanced budget would give legislators plenty of time to study the governor’s upcoming proposals, while making substantial tax hikes less likely.

Democrats accused Republicans of bypassing public hearings and serious legislative consideration of the budget. Sen. Jim Ferlo, D-Highland Park, called the move “a complete abortion of the public process.”

Pitt’s annual hearing before the House appropriations committee, which had been scheduled for next week, has been canceled. As the University Times went to press, the Senate appropriations committee still was planning to meet in an April 1 public session with Chancellor Mark A. Nordenberg and the presidents of the three other state-related universities, although McLaughlin said it was doubtful the session would be held.

Rendell has until March 22 to either sign the budget bill approved by the legislature, allow it to become law without his signature, veto the bill, or cut items from the bill before signing it. Vetoing the bill, all or in part, would send the budget back to the House and Senate for further debate.

Pitt lobbyists point out that the proposed 5 percent cut in the University’s appropriation would reduce Pitt’s state funding to $14 million less than it was two years ago.

“Our position is that it’s not just this year, it’s the cumulative effect of the last few years that’s hurting the state-related institutions,” McLaughlin said. “Granted, there are a lot of entities taking cuts this year, but they didn’t suffer the severity of funding reductions that higher education did in recent years.”

Two years ago, Pitt was budgeted to receive less than a 1 percent increase. Later in the year, another 3 percent of the University’s funding was frozen and, ultimately, cut.

Next year’s possible 5 percent cut would come out of the full $176.7 million appropriation that Pitt is budgeted to get this year. Since December, the state has frozen 2 percent of the $176.7 million, saying it was necessary to head off a budget deficit.

Additional freezes aren’t in the works yet, McLaughlin said.

“Members [of the legislature] have told us that, while the state hasn’t received any revenue windfalls in the last two months, they’re not falling behind. March and April are the state’s two biggest tax revenue months. What we’re hearing is, [state lawmakers] are waiting to see how these two months go” before considering any more funding freezes.

Implementation of Rendell’s austere, initial budget would create a domino effect as other agencies seek to make up for lost state revenues at Pitt’s expense, Chancellor Nordenberg warned Senate Council at its March 4 meeting.

Port Authority of Allegheny County already is negotiating with Pitt to increase its annual fee in exchange for continued ride-for-free service for Pittsburgh campus employees and students. See March 6 University Times.

“Secondly,” Nordenberg said, “the city continues to face a very significant revenue-expense gap in its budget, and the city too is looking our way.

“Pittsburgh is very important to this University,” the chancellor emphasized. “It is our home. We want the city to be a strong, vibrant, economically healthy place. So, we do have a stake in the resolution of the issues presented by these municipal budget problems. But at the same time, the solution is not to strip organizations like schools, hospitals and churches of their tax-exempt status” — a reference to a proposed wage tax that the city would impose on all Pittsburgh employers, including currently tax-exempt institutions.

The University also faces increased expenses for health insurance, beginning July 1, Nordenberg noted. “Pitt has been largely insulated from dramatic increases in health insurance costs over the last three years because of our agreement with UPMC Health Plan,” he said. “But that contract is expiring this year, and we almost certainly will be receiving another dose of economic reality on that front.”

Fiscal news from other universities “also is sobering,” the chancellor said. He noted that Stanford, an elite private university with a $7.6 billion endowment, recently announced an institution-wide salary freeze and selected layoffs to help close a projected $25 million deficit. Stanford officials blamed the shortfall on “a reduction in income due primarily to a weak stock market” and “increased costs due to a volatile health care environment.”

Pitt faces “real challenges,” Nordenberg said. “Fortunately, we have built a level of institutional strength — and that includes fiscal strength — over the course of the last several years. That means we are much better positioned to deal with an inhospitable environment.

“I really am a firm believer that the greatest comparative progress that an institution can make is, in fact, during challenging times. And so, as difficult as some of the issues we need to confront will be, I think this also can prove to be a time of opportunity for the University of Pittsburgh, and we’ll be pursuing those opportunities aggressively and with determination.”

— Bruce Steele

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