HARRISBURG — Schools and nonprofits that provide critical services to Pennsylvania’s most vulnerable have not received billions in payments from the state over the past four months because of the budget impasse.
That money will be released when lawmakers agree on a plan. But it won’t include interest, even though the state Treasury has earned $40 million as it sits unused.
These organizations are in increasingly dire financial positions as the impasse continues, with some taking on debt because of the stalemate. Others are cutting costs or tapping reserves to keep up with rent, salary, and utility payments.
Administration officials, lawmakers, and those familiar with the state government said they were unable to comment on the issue or exceptions identified by Spotlight PA. For instance, state law mandates the government pay back small business contractors — companies that have 100 or fewer employees — with interest after an impasse.
But that extra relief won’t reach many trying to survive without state money. And payments on debt that providers are forced to take on weigh down budgets and make it harder to deliver key public services, they told Spotlight PA.
Easterseals is a national nonprofit that provides services to prepare children with special needs for kindergarten. It receives financial support from the state, but has been forced to take out $1.3 million in loans during the impasse and might take out more.
“The best [interest rate] is 5% which is fantastic,” Tim Kerrihard, CEO of Easterseals Southeast PA, told Spotlight PA during an interview at one of its three Philadelphia schools. “The worst is north of 10%. So that's a lot of money that just effectively is wasted.”
During Spotlight PA’s visit in September, dozens of kids listened to music, played in a ball pit, or got lessons via flash cards. The space is set up so Easterseals staff of teachers, social workers, and various types of therapists can watch the kids as they play and learn. From those observations, they can then aid the children’s development as they approach school age.
Such care is labor-intensive — staff sometimes outnumber students in a given room — and expensive. But it can make a long-term difference in kids' lives. Recognizing that, the state legislature passed a law in 1990 that says Pennsylvania families with special needs children are entitled to free care.
To subsidize these services, the state Department of Education provides millions of dollars each year to Easterseals and similar specialized providers. For the southeastern branch of the nonprofit, that aid totalled $8.4 million last fiscal year.
“We're the last stop in the safety net, and we are serving the most vulnerable humans that exist. They're the youngest and the most disabled,” Kerrihard said. “So we're the backstop.”
Mental health providers are also feeling the strain, said Laurie Barnett Levine, CEO of Mental Health America of Southwestern PA.
The Westmoreland County-based nonprofit provides support groups, referrals, and other aid to individuals with mental health diagnoses or their families.
These services are free and administered during home visits or at a handful of locations owned or rented by the group, Levine told Spotlight PA. It employs 25 to 30 staff, some part-time, in this mission.
“You can't do much outreach if you're sitting at your desk all the time,” she added. “So they're constantly moving around, going different places.”
To pay for this, the group has an annual budget of roughly $2 million, about 90% of which comes from the state, Levine estimated.
But because of the delayed state payments, the organization has started cutting back on all but the most essential business expenses. Levine said she’s taken meetings on Zoom rather than going to Harrisburg to chat with Shapiro administration officials, for example.
That’ll do in the short term. But if the organization has to tap a line of credit or even worse, furlough staff, that’ll mean reductions in service — meaning fewer people finding help for addiction, depression, or suicidal thoughts.
Levine said there is no timetable for seeking a loan. She noted that other state mental health organizations that were saddled with debt due to previous budget impasses are still paying it off.
How her organization handles the coming weeks and months, she added, is firmly in the hands of the General Assembly.
“I too felt like, ‘Oh, this will be resolved. It'll be resolved. This will be resolved,’” Levine said. “Now I think, like, ‘Will this ever be resolved?’”
It’s been over 100 days since the June 30 deadline to pass a budget. At the heart of the impasse is a disagreement between Democratic Gov. Josh Shapiro, the Republican-controlled Pennsylvania Senate, and the Democratic-controlled House over state spending.
The state House approved a proposal last week with bipartisan support that would increase spending by 5%, a lower figure than Shapiro originally proposed. Leadership argued that state Senate Republicans are being intransigent, negotiating in bad faith, and putting politics — namely, dinging Shapiro, who is up for reelection next year — over people.
“This is serious, people,” House Speaker Joanna McClinton (D., Philadelphia) said, citing senior center closures, school walkouts, and nonprofit layoffs. “And we are serious about doing the people's work.”
State Senate Republican leaders say they prefer to pass a plan that flat-funds the budget so that payments can be released while the parties keep negotiating.
“Our fiscal stability is just enormously contingent upon what the final numbers are” in the budget, Appropriations Committee Chair Scott Martin (R., Lancaster) said last week.
Both chambers adjourned without coming closer to a deal. The state Senate is scheduled to return on Oct. 20, and the House on Oct. 27.
Pennsylvania is one of just two states without a complete state budget, and the only one to not have passed any stopgap spending. Lobbyists have privately speculated to Spotlight PA that a deal may still be months away.
Impasse politics
In recent weeks, interest payments have also become a political football.
Earlier this month, state Treasurer Stacy Garrity, a Republican running against Shapiro, announced she was establishing a loan program for counties and Head Start programs struggling to pay their bills. She has since expanded it to other nonprofits, like rape crisis centers.
The $500 million program, which uses unallocated state dollars, provides loans at a 4.5% interest rate. Recipients must pay the loans back in full within 15 days of the budget’s signing. (A Treasury spokesperson told Spotlight PA that the program hasn’t yet distributed any funds.)
Garrity called the loans stopgap funding for critical services, adding that she’s required by state law to charge interest: “Believe me, if I didn't have to charge an interest rate, I wouldn't.”
The needs are clear.
Kara McFalls, executive director of the Pennsylvania Head Start Association — an advocacy group for the early childhood education program — told Spotlight PA that an internal survey of providers found that 88% of respondents will incur debt to keep classrooms open by October.
As program classrooms increasingly turn to debt, “an interest rate of 4.5% is a significant savings,” she said in an email about Garrity’s program.
Other eligible providers said the terms are onerous. In a statement earlier this month, the Pennsylvania Coalition Against Domestic Violence said it would qualify for around $5.8 million in aid.
“While these funds would be invaluable support, our non-profit simply cannot afford to take on the additional interest cost of appx. $260,000,” the coalition said. “If the Commonwealth cannot agree on a budget, we call on legislators to support Treasurer Garrity’s Budget Bridge Loan by waiving interest fees.”
The state Senate recently passed a bill that would allow Garrity to waive interest on the impasse loans and authorize the program for next year if lawmakers again blow the budget deadline in June 2026.
Two Democrats voted for the bill. But Democratic leadership argued that the program is unlawful and a politically motivated attempt to improve Garrity’s stature at the expense of Shapiro’s.
“There's one problem, ladies and gentlemen,” said state Senate Minority Leader Jay Costa (D., Allegheny). “As much as a gubernatorial nominee would like to be the hero in this particular instance, she does not — does not — have the authority to loan money during a budget impasse.”
Garrity has said the program is not politically motivated. “In fact, if I wanted to make it political, I wouldn't do any of this, and we keep the pressure on,” she quipped last month.
A spokesperson for state House Democrats did not respond to a request for comment on whether leadership will bring the proposal up for a vote.