Bit by bit — or, rather, million by million — Pennsylvania’s budget has been expanding beyond what the Legislature initially authorized. During just the last five fiscal years, 20 departments spent almost $1.5 billion beyond what the House and Senate appropriated in their annual budgets, according to state records. Most of that flowed through an obscure section of the state’s bookkeeping system called the nonbudgeted ledger, also known as the more mysterious-sounding Ledger Five. And mysteries about it abound.
Top current and former House appropriators claim not to know it exists. Some who do know it exists, such as former state Sen. Scott Wagner, wrongly suspect it’s some kind of slush fund. And the ledger itself allows officials to spend money the Legislature hasn’t approved, despite clear language in the state Constitution saying they can’t.
Wagner, a Republican from York County, says he repeatedly asked officials involved in the budget process for answers about Ledger Five but didn’t get any.
State budget officials say it’s a necessary accounting mechanism. Critics including Rep. Seth Grove argue that the feds would be all over any private corporation that used it.
“If we were a publicly traded company, we’d all be in jail,” said Grove, a Republican from York County. “Enron’s got nothing on us.”
In addition to unemployment compensation and State Workers Insurance Fund payments, the ledger is a catch-all for spending that doesn’t fit in the state’s other accounts. Some of that spending is causing the state’s budget to swell year after year without going through the normal appropriations process, said Grove and Rep. Frank Ryan, a Republican from Lebanon County.
That extra spending gets locked in when appropriators use the new, higher annual spending as their baseline for the next year’s budget, they said.
Ledger Five isn’t the cause of this extra legislative spending growth, Grove said.
“It’s just how they do it,” he said.
More than $112 billion has flowed in and out of the ledger since the beginning of fiscal year 2014-15, state records show. Almost half of that — more than $50 billion — flowed through the ledger during the nine-month budget impasse in 2015-16, according to monthly appropriations reports from the Office of the Budget.
THE HOW AND THE WHY
That impasse offers one of the clearest examples of how Ledger Five works and why it exists.
During those nine months, the commonwealth had no legislative permission to spend from its general fund. Article II of the state Constitution is pretty clear about this sort of thing.
“No money shall be paid out of the treasury, except on appropriations made by law and on warrant issued by the proper officers,” Section 24 states.
The Constitution isn’t the only word on the matter, though. In the case of that impasse, it wasn’t even the final word.
Six years earlier, during a budget stalemate over the massive state deficit caused by the Great Recession, state employees were ordered to continue working even though they wouldn’t get paychecks until the impasse ended. It got so bad, almost 16,000 state employees had to take out loans to cover their bills during the 101-day-long crisis, The Patriot-News reported at the time.
Seventy-five thousand went without a paycheck for as long as 22 days, according to Council 13 of the American Federation of State, County and Municipal Employees.
That union, which represents more than 67,000 state employees, sued the government and won. The state Supreme Court ruled the federal Fair Labor Standards Act requires the state to pay its employees even if the Legislature hasn’t given it any such authority.
Fast forward six years, to the most recent impasse, and the state was stuck between that ruling and Section 24 of the state constitution. Officials had to pay their workers, but they couldn’t use their normal budgets because those budgets didn’t exist.
Enter Ledger Five.
Ledger Five isn’t a fund; it’s an accounting mechanism, a way to record how money goes from point A to point B. The state was still collecting tax revenue, even though the Legislature hadn’t said how it could be spent. The Constitution said officials couldn’t spend money without the Legislature’s OK, but the Supreme Court said they had to pay their workers.
So instead of recording the payroll of, say, the Department of Corrections in the ledger used for the (then-empty) general fund, they recorded it in Ledger Five.
Once the impasse ended, the Legislature back-filled the unbudgeted spending by ... well, putting it in the budget.
THE MASTER GLAND
It doesn’t take a budget stalemate for Ledger Five to become necessary, budget officials say.
Every year, departments spend more than the Legislature allots them because of federal or judicial requirements. The 20 departments that overspent their budgets by $1.5 billion over five years were partially offset by a few other arms of state government that underspent. Taken together, the state paid about $1.3 billion more than was originally budgeted.
The Department of Human Services accounts for almost all of that, and Ledger Five is how they did it.
“It’s the pituitary gland of the entire state system,” said Ryan, referring to the tucked-away gland that controls most of the human body’s hormonal system.
As with salaries, spending on some Human Services programs isn’t optional.
“The commonwealth has a federal mandate to provide these services. Even if the lines are underfunded, we must pay the rates mandated by the federal government. If a senior or a disabled individual comes to be served, we don’t have the ability to turn them away,” Gov. Tom Wolf’s spokesman, J.J. Abbott, said.
In a sense, the overspending results from efforts to cut spending.
“The Legislature has taken a much more conservative approach to funding human services over the past 10 years,” said former House Majority Leader Dave Reed, R-Indiana County. “It was not building in as much of a cushion.”
The Republican-controlled General Assembly erred on the stingy side out of fear that if they gave the agency more money than it needed, it would find a way to spend it before the fiscal year ended, he said.
“You’re appropriating dollars you’ll never see again,” Reed said.
But the General Assembly can’t legislate demand for aid. That’s a consequence of economics, illness and, sometimes, just plain bad luck. And when someone needs help, federal law says they don’t have to wait until the next fiscal year to get it.
So when the Legislature’s repeated attempts at thriftiness ran into federal requirements that programs be funded no matter what, the federal requirements won out, and the state’s accountants opened up Ledger Five.
SQUARING THE CIRCLE
There’s still that pesky state Constitution, though. Article II, Section 24 says what it says.
The way legislators and the governor bridge the annual gap between unbudgeted spending and the requirement that all spending be budgeted is pretty simple. They change the budget.
Just about every year, the governor goes to the Legislature with a supplemental budget request.
“The governor has historically spent money and then come back to us for permission,” Ryan said.
The request readjusts legal spending levels to match what’s actually being spent. The process gets far less scrutiny than the initial budget debate, when negotiations eclipse everything else going on in the Capitol.
Ledger Five’s role in the supplemental budget is both central and obscure.
“I never heard of that,” said U.S. Rep. Dwight Evans, who served as state House Democratic Appropriations Chairman for two decades. “All appropriations must be approved by the Legislature.”
The current ranking Democrat on the House Appropriations Committee, Matt Bradford, was similarly unaware of Ledger Five.
“I’ll have to look into it,” said Bradford, who is in his third year as minority chairman.
Evans, reached on his cell phone while riding a train to Washington D.C. for the vote to impeach President Donald Trump in December, called the extra legislative spending mechanism “strange.”
“It gets back to the (state) Constitution, which requires the Legislature to approve appropriations,” Evans said. “In all my years, I never heard of anything being spent that was not approved by the Legislature.”
Reed pointed out that the spending was approved. It just happened to be after the fact.