HARRISBURG \u2014 When state lawmakers passed a budget Sunday, leaders praised it for being a fiscally responsible $50.8 billion product that doesn\u2019t dip into the state\u2019s rainy day fund.<\/p>\n
That\u2019s a misleading picture. To reach that number, they had to employ some accounting tricks.<\/p>\n
The biggest involves delaying two months\u2019 worth of payments \u2014 each costing about $1.3 billion \u2014 to the state\u2019s Medicaid managed care organizations. In the Capitol, it\u2019s a process called a \u201ccycle roll.\u201d<\/p>\n
Managed care organizations, or MCOs, are responsible for organizing healthcare for the majority of Pennsylvania patients<\/a> covered by Medicaid.<\/p>\n Known in the state as HealthChoices programs, they cover standard healthcare<\/a>; home care<\/a> for older adults and people with disabilities; and behavioral services<\/a> such as drug and alcohol treatment. The state pays MCOs monthly fees on a per-member basis.<\/p>\n There\u2019s no set date when the state will need to catch up on the two months of payments it pushed back. In theory, it could indefinitely keep this adjusted schedule, in which it makes payments for claims that are older than usual.<\/p>\n State House Appropriations Chair Jordan Harris, D-Philadelphia, said the cycle roll would not impact Medicaid services.<\/p>\n However, Matthew Knittel, who heads the state\u2019s Independent Fiscal Office, argued it could cause \u201ccash flow issues\u201d for the care organizations.<\/p>\n Multiple Medicaid managed care organizations, including Geisinger and UPMC, did not return requests for comment about how the budgeting maneuver would affect them.<\/p>\n Knittel also noted the state\u2019s creative accounting did not solve the overarching problem of Pennsylvania spending more than it earns<\/a>.<\/p>\n Heading into this year\u2019s budget talks, lawmakers knew they would have to contend with that multibillion-dollar structural deficit, coupled with mounting costs for obligations like healthcare and education. In his original budget pitch, Democratic Gov. Josh Shapiro proposed balancing the books by pulling about $4 billion from the state\u2019s rainy day fund and creating new revenue streams like recreational marijuana.<\/p>\n But Harris said the Republicans who control the state Senate opposed any dip into the rainy day fund. The cycle roll, he said, was an ask from the upper chamber.<\/p>\n \u201cWe agreed to this because Senate Republicans wanted to do it,\u201d Harris said. \u201cThis is what they wanted to do, and this is what we agreed to in order to get a budget done.\u201d<\/p>\n A spokesperson for Senate Republicans did not immediately respond to a request for comment on Harris\u2019 claim.<\/p>\n The cycle roll creates $2.6 billion in \u201ctemporary, one-time savings\u201d over the course of two years, Knittel said.<\/p>\n \u201cIt has no impact at all on the long-term structural deficit,\u201d Knittel said.<\/p>\n Lawmakers also had to pull more than $500 million from off-budget \u201cspecial\u201d funds to make the math work.<\/p>\n Pennsylvania\u2019s net revenues this year could reach $47.75 billion, according to IFO predictions<\/a> released after Shapiro signed the budget. The agency estimates that would mean the commonwealth will operate in a roughly $5 billion deficit, including one year\u2019s cycle roll.<\/p>\n Asked about the delayed payments at a news conference, state Senate Majority Leader Joe Pittman, R-Indiana, didn\u2019t address any concerns and hinted at a new policy fight next year. He said his caucus spends a lot of time trying to find ways to cut down on Pennsylvania\u2019s human services spending.<\/p>\n \u201cA lot of that money goes through these MCOs, and we talk a lot about governmental bureaucracy,\u201d Pittman said. \u201cWell, there\u2019s also this thing called corporate bureaucracy. I don\u2019t think it\u2019s something we paid enough attention to, and I do think it\u2019s something we\u2019re going to pay a lot more attention to in the budget upcoming.\u201d<\/p>\n Pittman did not elaborate.<\/p>\n Rosie Lapowsky, a spokesperson for Shapiro, criticized state Senate Republicans for not supporting either of the major revenue streams the governor proposed earlier this year: regulating and taxing skill games, and legalizing and taxing recreational marijuana.<\/p>\n \u201cIn divided government, every budget requires compromise and while Senate Republicans\u2019 only priority was saving every penny of the rainy day fund, Governor Shapiro stayed at the table to protect the critical health care services millions of Pennsylvanians rely on and secure new investments that will support our students, grow our economy, reduce costs, and improve public safety,\u201d Lapowsky said.<\/p>\n Cycle rolls are an accounting trick that used to be common in Pennsylvania during times of financial stress. According to one state House Republican staff member, the practice stretches back at least to Democratic Gov. Ed Rendell\u2019s administration in the wake of the 2008 market crash that caused a recession.<\/p>\n In 2022, pandemic-era stimulus money allowed the commonwealth to make an extra-large payment to MCOs to clear its backlog and realign its payment plan with the fiscal calendar.<\/p>\n Then-Senate Appropriations Chair Pat Browne, R-Lehigh \u2014 now secretary of revenue in the Shapiro administration \u2014 celebrated the timeline fix, arguing on the Pennsylvania Senate floor<\/a> it would bring \u201cmore stability\u201d by expediting payment cycles and \u201cputting those payments on a more timely payment plan.\u201d<\/p>\n Critics of the cycle roll this year, mostly conservative Republican lawmakers, argue that lawmakers saying this year\u2019s budget is fiscally responsible misleads constituents.<\/p>\n State Sen. Jarrett Coleman, R-Lehigh, said taxpayers who might not fully understand the wonkery of the Medicaid \u201ccharade\u201d will eventually pay for the \u201cdishonest\u201d decision. He voted against the deal.<\/p>\n \u201cWe have to be able to have an honest discussion about our finances,\u201d Coleman said. Delaying the two months of payments is equivalent to telling people \u201cthey can save money by not paying their bills. I mean, we\u2019re the commonwealth. We should be paying our bills.\u201d<\/p>\n Coleman speculated that legislative leaders wanted to expedite a deal to avoid the negative attention a late budget can bring \u2014 like last year\u2019s four-month impasse \u2014 because half of the state Senate, the entire 203-member House, and Shapiro are all up for reelection in November.<\/p>\n \u201cThat shouldn\u2019t abdicate you from having to make tough decisions just because it\u2019s an election year,\u201d Coleman said. \u201cYou don\u2019t just get a bye because it\u2019s an election year.\u201d<\/p>\n Spotlight PA\u2019s Stephen Caruso contributed reporting.<\/p>\n Spotlight PA<\/a> is an independent, nonpartisan and nonprofit newsroom producing investigative and public-service journalism that holds power to account and drives positive change in Pennsylvania. Sign up for free newsletters at spotlightpa.org\/newsletters<\/a>.<\/p>\n Before you go, if you learned something from this article, pay it forward and contribute to Spotlight PA at spotlightpa.org\/donate<\/a>. This story was funded in part thanks to the support of the Lancaster County Local Journalism Fund. 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