3.12.26 - House Budget Hearing - Governor's Budget Office

Pennsylvania House Budget Hearing

Office of the Budget / Budget Secretary Reber – Detailed Overview / Notes

I. Opening Budget and Capital Budget Context

A. Delayed budget and held payments

• Early in the hearing, Secretary Reber explained the scale of the cash-flow disruption caused by the delayed budget.
• He testified that the Commonwealth had already pre-audited about 106,000 payments and coordinated with Treasury so they could be released immediately once a budget was enacted.
• Those payments totaled approximately $7.2 billion and would otherwise have gone out on time to:
  • school districts,
  • counties,
  • and other entities dependent on state payments.

B. Delayed capital budget and debt issuance

• The committee then turned to the consequences of a delayed capital budget and related debt issuance bill.
• Reber stressed that the capital budget is a key part of the Commonwealth’s broader service-delivery strategy because capital projects are financed through debt, which in turn supports payments to contractors.
• He said the administration prefers to have a debt bill enacted near the start of the fiscal year so it can issue bonds when market conditions are most favorable.

C. Bond timing and multi-tranche strategy

• Reber testified that the administration used a multi-tranche bond sale strategy, splitting the offering into three separate bids to lower borrowing costs.
• He said the ability to sell debt when needed—and not delay cash management—helps prevent slowdowns in capital project payments.

II. Budget Growth Projections and Credibility of Out-Year Assumptions

A. Skepticism over the 0.78% out-year growth projection

• A major line of questioning focused on the administration’s projected 0.78% budget growth in one of the out years.
• Members argued that the projection appeared inconsistent with actual cost pressures already visible in:
  • DHS,
  • education,
  • and other major spending areas.

B. Reber’s response

• Reber said the projections are built from known mandatory costs and other items the administration believes it can reasonably forecast at this time.
• He specifically referenced uncertainty around:
  • H.R. 1 at the federal level,
  • DHS cost containment measures,
  • minimum wage changes,
  • redeterminations,
  • and evolving federal work requirement policies.

C. Year-by-year budgeting approach

• Reber repeatedly emphasized that the administration budgets one year at a time and that each budget proposal is based on the information currently available.
• He said future-year assumptions cannot fully account for what the General Assembly may or may not enact in later years, especially in areas like education.

D. Legislative frustration

• Members pushed back, arguing that multiyear projections are critical for responsible legislative planning and that recent budgets had grown at materially higher rates than the projected out-year growth.
• The exchange underscored a broader partisan tension over whether the administration’s long-range numbers are realistic or simply placeholders pending future negotiations.

III. K-12 Adequacy Funding and the Seven-Year Timeline

A. House Bill 2370 and adequacy path

• Representatives pressed Reber on the state’s commitment to the seven-year timeline established in House Bill 2370 to close the K-12 adequacy gap.
• One member noted that the gap had started at about $4.8 billion, and that after two budget cycles the state had reduced it by roughly $1 billion, or about 20%, leaving about five years remaining under that framework.

B. Administration’s position

• Reber said the administration has begun to address the adequacy gap and remains committed to working toward the seven-year goal.
• He testified that the first year of the adequacy effort was funded at about $526 million, and that it increased to $565 million in the next year.
• For FY 2026, the administration is again proposing $565 million through the Ready to Learn Block Grant formula, consistent with the prior agreement reached with the General Assembly.

C. Reported uses of adequacy dollars

• Reber said the first round of district reporting shows the money is being put to use in ways aligned with legislative intent, including:
  • about 25% toward academic success, and
  • almost 20% toward full-day kindergarten.

D. Adequacy as an economic strategy

• Reber framed adequacy funding as part of the administration’s broader workforce development and economic growth strategy, linking school investment to future labor force quality and long-term revenue growth.
• He argued that stability in school funding, combined with tax and permitting reforms, supports a better business climate and a stronger long-term outlook for the Commonwealth.

IV. IT Modernization, CodePA, Enterprise Security, and SAP / S4

A. Repeated enterprise security requests

• Members asked why the Governor was again seeking additional funding for enhanced enterprise security, after a similar request the prior year.
• Reber responded that cyber threats have continued to increase, making it necessary to build on the earlier investment rather than treating cybersecurity as a one-time expense.

B. Distinguishing CodePA, OAIT, and enterprise security

• Reber explained the state’s IT structure in three parts:
  • OAIT / OA IT Services provides core enterprise-wide IT operations,
  • Enterprise Security is the security layer used to protect those systems,
  • CodePA is the in-house software development unit created to reduce reliance on outside contractors and build new state platforms internally.

C. Shared service billing

• He testified that the projected IT shared service billing model for FY 2026–27 is about $384 million, which covers agencywide enterprise IT services rather than only outside contracting.

D. SAP / S4 replacement

• Reber said the Commonwealth’s current SAP system is at roughly a 20-year lifecycle and is reaching the end of vendor support.
• He described the S4 project as the replacement of that core system, which serves as the backbone for:
  • financial reporting,
  • HR systems,
  • procurement systems,
  • and related statewide administrative functions.

E. Timeline and funding

• Reber testified that about $60 million is being used for the current planning/build phase of the S4 replacement.
• The administration hopes to begin going live in FY 2026, with the current system likely phased out around the 2027–28 timeframe as support expires.

V. Permitting Reform, Act 45, OTO, and CodePA

A. Act 45 and permit tracking

• Members asked how the administration is implementing Act 45, especially the requirements for:
  • a public permit catalog,
  • and a permit progress tracking system.

B. Where the program sits administratively

• Reber said:
  • OTO (Office of Transformation and Opportunity) is funded through DCED’s General Government Operations line,
  • while CodePA receives its own appropriation to build the online infrastructure.

C. CodePA funding

• He clarified that:
  • the increase in the CodePA appropriation is a little over $3 million,
  • while $3.7 million is the dedicated amount specifically tied to building the permit tracking database.
• He also said CodePA still has some previously appropriated funds and savings from prior operations that can be used alongside the new appropriation.

D. Division of responsibilities

• Reber described the arrangement as collaborative:
  • OTO manages the fast-track and business-facing process,
  • CodePA builds the online database and digital infrastructure,
  • DCED remains the core economic development agency,
  • DEP and other agencies still control their underlying permit decisions,
  • OAIT manages statewide IT infrastructure.

E. Fiscal oversight

• When pressed on who ultimately oversees spending, Reber answered that the oversight process is the same as for other General Fund appropriations:
  • the Budget Office,
  • Comptroller operations,
  • and ultimately the Treasury.

VI. Housing Action Plan and Critical Infrastructure Investment Program

A. Affordability and housing supply

• In response to questions about affordability, Reber pointed to the Governor’s Housing Action Plan, which includes legislative and regulatory proposals aimed at increasing housing availability and reducing cost pressures.
• He argued that increasing housing supply is a straightforward affordability strategy: the more available housing stock there is, the more price pressure may ease.

B. Critical Infrastructure Investment Program

• Members also questioned the Governor’s proposed Critical Infrastructure Investment Program, which would issue $250 million annually for four years, totaling $1 billion.

C. Intended purposes

• Reber said the fund is envisioned for:
  • school facility funding,
  • new and refurbished housing,
  • and bringing more energy to the grid.

D. Administration of the program

• Reber said the administration proposes to house this program in the Office of the Budget, structured similarly to the RACP program for grant administration.
• He indicated that project merits—not only local zoning compliance—would drive where dollars go, although details were still under development.

E. Tension over local zoning leverage

• Members, especially from farmland-heavy districts, objected that the Housing Action Plan appears to prioritize funding for municipalities that adopt zoning and permitting reforms favored by the administration.
• Reber replied that:
  • broader changes would likely involve amendments to the Municipal Planning Code, which would require legislative action,
  • and that stakeholder input remained central to shaping how these designations would work.
• He did not directly commit that communities refusing to adopt such reforms would be protected from exclusion, which remained a point of tension.

VII. Energy, Grid, Data Centers, and Fast-Track Permitting

A. Grid / energy policy connection

• Members asked how the administration’s permitting and energy agenda—sometimes described as the Governor’s “grid” or broader energy initiative—would work in practice.

B. Standards for accelerated projects

• Reber said the administration wants fast-tracked projects, particularly in the data center space, to meet several standards:
  • use of local workforce in construction and operations,
  • environmental protections,
  • transparency for local stakeholders,
  • and the requirement that projects “bring their own power” so they do not drive up energy prices for existing local consumers.

C. Who is in charge

• Reber repeatedly stated that the fast-track process is managed by OTO, which works collaboratively with DCED, DEP, and other agencies.
• The hearing showed ongoing legislative skepticism about whether that governance structure is sufficiently clear and durable.

VIII. Rainy Day Fund, Credit Ratings, and Fiscal Discipline

A. Rainy Day Fund balance and drawdown concerns

• Members noted that the Rainy Day Fund balance was approximately $7.63 billion as of late winter and argued that using about $4.5 billion to balance the Governor’s spending proposal would materially weaken the state’s reserve position.

B. Reber on credit ratings

• Reber said the Commonwealth’s recent bond rating affirmations reflect more than just the Rainy Day Fund balance. He testified that rating agencies also consider:
  • overall fiscal stability,
  • on-time payments,
  • debt management,
  • and economic investment strategy.

C. Rainy Day Fund and the proposed federal response transfer

• Reber confirmed the administration is proposing a $100 million transfer out of the Rainy Day Fund for a proposed Federal Response Fund.
• He emphasized that the Rainy Day Fund has generated very large interest earnings in recent years, including interest in FY 2024 that was about three times the size of the proposed transfer, and roughly eight times that amount over the three-year period of the current administration.

D. Legislative concern

• Members argued that depleting reserves could threaten bond ratings and future borrowing costs.
• Reber responded that the administration had proposed Rainy Day Fund use in the prior year as well, but it was not ultimately enacted, and that the final decision would depend on negotiations with the General Assembly.

E. On-time budget as a ratings factor

• In another exchange, Reber confirmed that on-time budgets are also a factor rating agencies care about because they demonstrate operational stability and predictable payment timing.

IX. Affordability Initiatives: Taxes, Housing, Energy, and Rebates

A. Administration’s affordability framework

• Reber said the budget attempts to address affordability through a combination of:
  • housing policy,
  • energy policy,
  • tax credits,
  • and expanded rebate eligibility.

B. Tax credit examples

• He pointed to:
  • the Child and Dependent Care Tax Credit,
  • and the newer Working Pennsylvanians Tax Credit,
    as examples of putting money back in residents’ pockets.

C. Property Tax/Rent Rebate

• Reber testified that the Property Tax/Rent Rebate Program is now tied to inflation indexing, helping seniors remain eligible as income rises with Social Security and other adjustments.
• He projected about $300 million in property tax/rent rebate payments in FY 2026.
• He clarified that while program operations are funded from the Lottery Fund, the actual payments now come from the Property Tax Relief Fund.

X. Arts Funding and Pennsylvania Council on the Arts

A. Concerns about funding changes

• A member raised concern about recent changes in how the Commonwealth funds arts organizations and asked whether the Pennsylvania Council on the Arts had conducted a formal assessment of the financial needs of arts and cultural institutions.

B. Reber’s response

• Reber said he could not speak to specific assessments but was aware of the broader policy shift and the Council’s effort to reorient funding so more dollars flow directly to arts projects.
• He said his understanding was that the change followed a stakeholder process and was unanimously approved by the board.

C. Unresolved concern

• Members warned that arts organizations are under severe financial stress due in part to federal cuts and urged the administration to continue evaluating the consequences of its new funding model.

XI. Pension / COLA Questions

A. Pre-Act 9 retiree COLA proposal

• One member asked about the cost of implementing a cost-of-living adjustment for pre-Act 9 retirees, referencing House Bill 411.

B. Reber’s response

• Reber said the budget funds the state share of PSERS and SERS at the actuarially recommended rate under current law.
• He testified that the fiscal note he had seen suggested the COLA proposal would increase annual needs across the systems by roughly $170 million per year.
• He said additional appropriations and coordination with the retirement systems would be needed if the legislation advanced.

XII. State Police and the Motor License Fund

A. Suspension of the step-down proposal

• Members asked why the administration did not again propose a step-down in the amount of Motor License Fund money used for the Pennsylvania State Police.

B. Reber’s explanation

• He said the administration had previously proposed reducing PSP reliance on the Motor License Fund by $125 million per year, but the General Fund constraints made it impractical to continue that step-down in the current proposal.

C. Savings already achieved

• Reber testified that prior actions have already freed up about $625 million for additional road and bridge work, and that current law is expected to free up about $2 billion over five years.

XIII. PCCD / County Reentry and Corrections Funding Consolidation

A. Proposed new appropriation

• Members asked about the Governor’s proposed new county appropriation under PCCD that would consolidate multiple streams for:
  • parole,
  • adult probation,
  • reentry services,
  • and jail-based medication treatment.

B. Reber’s explanation

• Reber said the idea grew out of the administration’s early REMAP review work and was designed to make state dollars more flexible and useful at the local level.

C. Block-grant style flexibility

• He described the proposal as moving away from multiple narrow funding silos and instead treating the money more like a block grant, giving counties greater discretion to deploy funds where local needs are greatest.

XIV. Federal Response Fund and Guardrails

A. Why the fund is being proposed

• Reber said the purpose of the proposed Federal Response Fund is to allow the Commonwealth to react more quickly to sudden federal funding disruptions than the normal appropriations process may allow.
• This rationale echoes concerns raised elsewhere in the budget hearings about abrupt federal actions affecting SNAP and other health and welfare programs.

B. Guardrails and legislative control

• Reber stated that the creation of the fund would be subject to legislation, and that the details—including guardrails—would need to be worked out with the General Assembly.

C. ICE / federal enforcement concern

• Members explicitly asked whether the fund could ever be used to interfere with or obstruct ICE or other federal enforcement activities.
• Reber did not provide a direct categorical guarantee in the hearing, instead repeating that the legislative process and guardrails would govern any such fund.

XV. Closing Themes and Overall Takeaways

A. Main policy tensions

The hearing repeatedly returned to several core tensions:

• whether the administration’s long-range budget projections are realistic,
• how to sustain K-12 adequacy funding on the seven-year timeline,
• how to organize cross-agency permitting reform and fast-track development,
• how much reserve drawdown is fiscally prudent,
• and how much detail is still missing from large proposed initiatives such as the Critical Infrastructure Investment Program and Federal Response Fund.

B. Broader tone

• The overall tone was one of ongoing negotiation, with Reber repeatedly stressing that:
  • the budget is built one year at a time,
  • many details are still subject to legislative discussion,
  • and the final enacted budget will reflect ongoing talks with the General Assembly.