Republicans proposing loan interest forgiveness

The legislation would apply to counties and Head Start providers who sign up for a new state loan program due to the budget impasse.

Several Republican state legislators announced their intention to introduce legislation forgiving the interest on loans due to the months-late state budget.

Pennsylvania Treasurer Stacy Garrity announced last week that her office would launch a $500 million project to provide loans at a 4.5% interest rate to county governments and pre-K programs facing financial problems caused by the late budget.

Pennsylvania is one of just two states without a budget for the 2025-26 fiscal year.

House members returned to Harrisburg Monday while their leaders tried to negotiate with the Republican-controlled Senate to reach a deal.

Pennsylvania lawmakers remain locked in a fight over spending levels, education funding and policy priorities. Without a compromise, Gov. Josh Shapiro can’t release critical funds to counties, schools and state-run programs.

Counties are among the first to feel the impact. Funding for essential programs — child welfare services, senior centers, drug and alcohol treatment and public health departments — is on hold. Many counties with limited reserves have taken out loans or made cuts.

Senate President Pro Tempore Kim Ward (R-39), Majority Leader Joe Pittman (R-41) and Appropriations Chair Scott Martin (R-13) announced Tuesday that their legislation is to designed to help Head Start providers and counties during the budget impasse.

In a letter sent to Westmoreland County Commissioners last week, five GOP lawmakers, including Eric Davanzo and Reps. Abby Major and Eric Nelson, said the House Appropriations Committee unanimously passed an interim budget Sept. 10 with bipartisan support.

But House Speaker Joanna McClinton and Majority Leader Matt Bradford have not called the full House back into session for a vote.

House Republicans argue that their short-term solution — using last year’s budget to maintain funding — has been unfairly blocked by House Democratic leadership.

Pittman said they remain focused on “effectuating a final spending plan” that respects taxpayers, while allowing Pennsylvania to grow.

“Senate Republicans continue to negotiate in good faith to bring the Governor and House Democrats to a responsible bottom line to complete this year’s spending plan,” a Senate Republican release stated Tuesday. “Gov. Shapiro and House Democrat leaders continue to advocate for plans that spend beyond taxpayers’ means, setting Pennsylvania on a course of fiscal uncertainty and tax increases.”

Ward said Garrity made a “bold and important move” to help keep money flowing to counties at the lowest rate possible.

“The law requires the treasurer to charge interest on lending despite money continuing to flow into the Treasury and not being dispersed but collecting interest,” Ward said. “As such, we plan to offer legislation to provide forgiveness on the interest for those loans to ensure services don’t suffer while we continue to finalize a state budget.”

Eligible county governments and Head Start providers will be contracted privately by Treasury staff, according to agency officials. The office did not provide details about what would qualify a county or agency for the loans.

Recipients of a short-term loan to cover operating costs must agree to pay it back in full, including interest, within 15 days of a state budget being enacted, officials said. The $500 million that will fund the loans will come from the Treasury’s $21 billion Liquid Asset Pool.

As counties borrow and schools brace for cuts, GOP lawmakers say Democratic leaders are dragging out the fight for leverage. Democrats, meanwhile, argue Republicans are refusing to engage seriously on long-term funding priorities.

For now, the standoff continues. The Senate remains on 24hour call, meaning they could return sooner if a compromise is reached, but their next scheduled session is not until late October. They will convene Friday, but that is for a non-voting session.

“As a former county commissioner who served during a prolonged state budget impasse in 2015, I understand the challenges presented by a delayed budget,” Martin said. “It’s very much why I am hopeful those challenges, including the need for accrued interest costs, could be minimized by the House passage of the plan the Senate approved in mid-August to get state and federal funding out the door without further delay.”