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Pennsylvania budget: The legend of Ledger 5
As the state General Assembly inches closer to its end-of-June deadline to pass the next fiscal year budget, legislators will inevitably speak about avoiding another lengthy impasse like the one that lasted nearly nine months two years ago.
That impasse caused noticeable pain for some schools and state-funded nonprofit organizations, but it was hardly devastating, particularly for state government, which continued along without pause.
How did the Pennsylvania government survive nine budgetless months with no mass layoffs, work stoppage or any obvious repercussions?
The answer, at least in part, lies in a seemingly innocuous accounting maneuver that allowed the administration to move money through Ledger 5, referred to on appropriations reports as the nonbudgeted ledger.
State Sen. Scott Wagner, R-Spring Garden Township, called the ledger "mysterious," while Rep. Seth Grove, R-Dover Township, said the majority of legislators don't even know it exists.
Yet, nearly $50.5 billion was moved from the state's General Fund through the nonbudgeted ledger between July 2015 and March 2016, primarily for "Budget Stopgap," according to a review of monthly Appropriations reports.
Closer scrutiny: Ledger 5 is used for more than just budget stopgap payments, and local legislators, facing a projected $3 billion deficit, are starting to look more closely at this practice.
Auditor General Eugene DePasquale said part of the mystery comes from the mystical-sounding name, and he'd prefer it be called the emergency ledger.
But with billions of dollars moving through Ledger 5 on a monthly basis, the ledger is clearly used for more than just emergencies.
According to the state Office of the Budget, expenditures are recorded on Ledger 5 three reasons:
- Certain special funds — including the Unemployment Compensation Fund and Purchasing Fund — are funded through revenue streams outside the state's annual appropriation process and therefore operate from nonbudgeted funding.
- Certain programs are deemed essential to the state's requirements to preserve the health, safety and welfare of its citizens. If such a program exhausts its appropriation authority before the end of a fiscal year, further expenditures are posted to Ledger 5 and paid by the state Treasury Department.
- During a budget impasse, Ledger 5 is used for each activity the state must maintain, including paying employees for work performed.
Grove said the 2015-16 budget impasse highlighted the ledger's use, as some lawmakers began questioning how the administration continued to pay state employees.
The state treasurer, who was Timothy Reese at the time of the impasse, is responsible for approving or denying funding requests during an impasse, according to DePasquale, who lamented that this puts the treasurer in "a horrible position."
DePasquale's office did audit the use of Ledger 5 during the impasse and found that Reese had complied with state and federal laws, he said.
Since the impasse, Grove said he's been asking each agency how it uses Ledger 5 because "we're not going to fix the deficit without understanding the cost drivers and changing policies."
Closely monitoring the nonbudgeted ledger is key, Grove said, because it can provide a good warning signal the state's finances are awry.
Transparency: J.J. Abbott, a spokesman for Gov. Tom Wolf's office, said the use of Ledger 5 would be greatly diminished by responsible budgeting, "as the governor has proposed over and over again."
"The reality is that the Legislature appropriates funding and the administration is forced to deliver mandated programs even if the Legislature fails to appropriate adequate funding," Abbott said. "This accounting system is just a means to provide proper documentation of funding for federal-, state- and court-mandated expenses that exceed annual appropriations."
Wagner said Ledger 5 illustrates what he sees as a general lack of transparency in state government spending.
Wagner, who is planning a gubernatorial run in 2018, has proposed the state move toward zero-based budgeting, a method of budgeting often used by private businesses in which every single expense must be justified and closely monitored for each new fiscal year.
Abbott dismissed Wagner's claim about a lack of transparency, stating that each payment through the ledger goes through multiple steps, and all transactions are posted online, where appropriation committee staff can access the information.
DePasquale backed up Abbott's statement and suggested that the Legislature could pass a law regarding Ledger 5 if it felt the administration was abusing its authority.
The reality, he said, is both parties seem to want to maintain the flexibility for administrations to move money around, only complaining when the other party is in power.
Grove and Wagner both said they'd consider legislation on Ledger 5, but they don't know enough about it yet.
"We're really in the education phrase right now," Grove said. "It's time we pay attention and ask questions."