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Pennsylvania schools taking out more loans amid state budget impasse

HARRISBURG, Penn. (Reuters) – Pennsylvania school districts have had to take out more loans to survive the state’s budget impasse, with total borrowing now at $431 million, Pennsylvania Auditor General Eugene DePasquale said on Wednesday.

An additional 10 districts have borrowed another $85 million since DePasquale’s first report on the impact of the stalemate last month.

If the Republican-led legislature cannot strike a budget deal with Democratic Governor Tom Wolf by late November, another 54 school districts will have to borrow close to an estimated $250 million, he said.

“It’s bad now. But we go from bad to borderline disastrous if something isn’t done by Thanksgiving,” he told reporters at a press conference in Harrisburg.

Pennsylvania’s fiscal 2016 budget is 119 days overdue. Illinois, which has the worst credit rating of any state in the country, is the only other without a current budget.

The political gridlock “is having a greater impact in Pennsylvania” because state aid in Illinois is still flowing out to schools and local governments, Moody’s Investors Service said on Wednesday.

The Pennsylvania deadlock is partly about how to fix underfunded public pensions and pay for increased education funding. Wolf ousted one-term Republican Governor Tom Corbett last fall by promising to restore education aid with income tax hikes and a new tax on natural gas extraction, which Republicans oppose.

The gridlock has left a $2 billion state budget deficit unresolved and prompted Moody’s to revise its outlook on Pennsylvania’s Aa3 credit rating to negative on Oct. 16.

The stalemate affects “literally every facet” of school operations, DePasquale said. To get by, districts have stopped paying vendors and delayed contributions to teachers’ retirement funds. Some have discussed closures.

In Erie, a Pennsylvania city halfway between Cleveland, Ohio and Buffalo, New York, residents paid October property taxes early to generate revenue for the struggling schools, DePasquale said.

Wolf’s press secretary Jeffrey Sheridan said in a statement that current Republican leaders cut education funding for years. He called on them to “stop protecting the … status quo and work with the governor on a no-gimmicks, comprehensive plan to invest in our schools.”

Republicans tried but failed on Wednesday to override Wolf’s Sept. 29 veto of their stop-gap budget.

“This hardship is completely unnecessary – the money is there and the state hasn’t stopped collecting taxes,” Senate Majority Leader Jake Corman, a Republican, said in a statement, adding that Wolf’s proposed tax hikes had “no support.” (Reporting by David DeKok in Harrisburg; Writing by Hilary Russ in New York; Editing by Tom Brown)

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