The Pennsylvania budget impasse has caused municipalities and school districts to lose out on funding, placing extreme stress on their financing. What does this mean for our local school districts, counties, cities, townships, and other municipal entities?
Budget Impasse Impact on School Districts and Municipalities
Currently, there is a federal government shutdown and a 100-day state budget impasse within Pennsylvania.
The federal government shutdown has an impact on certain funding for municipalities and school districts. However, in many instances, it is the Commonwealth’s budget impasse that is having a greater impact.
As of October 8, 2025, the Pennsylvania House approved a budget proposal which will be sent over to the Senate for approval. But until there is a bipartisan deal between the Pennsylvania General Assembly resolving the current state budget impasse, school districts and local governments are under enormous amounts of stress as they face numerous financial challenges since the state budget impasse prevent them from receiving essential funding.
If a budget deal is not struck between both houses, then some school districts and local governments who cannot rely on cash reserves will be hamstrung in effectuating their core governmental functions. In such cases, maintaining liquidity becomes critical to ensuring continuity of essential services.
Without timely access to state or federal funding streams, school districts and local governments may be forced to explore short-term borrowing options to bridge gaps in revenue.
TRANS
What about cash flow financing for operational needs?
Occasionally, local government units have cash flow issues relating to sustaining their operations. When experiencing cash flow issues, local government officials may determine that it is the best interest of the local government unit to issue Tax and Revenue Anticipation Notes or bonds (TRANs).
Cash flow financings differ in many respects from capital project and refunding transactions. While we will not outline all the differences in this article, we will highlight a few.
At the outset, it is important to note that TRANS must be paid back in the fiscal year in which they are issued. In contrast, capital borrowings repayment period could be ten, fifteen, twenty or even thirty years depending on the useful life of the capital projects being financed. This means that typically local government units wait until the beginning of the fiscal year which is July for school districts and January for many other municipalities before they issue a TRAN. This allows the local government unit a full year to repay the TRAN. Sometimes circumstances dictate that Local Governments are constrained to issue TRANS at other points during their fiscal year.
Another difference is that in a TRAN financing, the local government certifies that they anticipate that there will be a time period or periods in which they will not have enough money to operate, but they anticipate they will receive those funds at some point during the fiscal year. In other words, there is a time lag or mismatch in when revenues are received, and expenses are due. There are certain limitations both under federal law and the Local Government Debt Act (“Debt Act”) as to how much can be borrowed for cash flow purposes and how the cash flow deficit must be demonstrated.
A final and important difference to highlight is unlike capital project and refunding transactions, under the Debt Act TRANs are reviewed pursuant to a different set of streamlined procedures.
Local government units still must authorize the action pursuant to resolution or an ordinance, and they still must file certain documentation with the Department of Community and Economic Development (“DCED”).
However, under the Debt Act, DCED is not required to and in fact will not approve a TRAN proceeding. Instead, DCED will issue a letter of acknowledgment evidencing re¬ceipt of the necessary documentation typically within 7 days. The letter of acknowledgement is an important document for the TRAN to be issued; but because of the limited scope of review, it can be secured in an expeditious manner.
Bottom Line For Schools
As things continue to develop, we will have to wait and see if the budget is passed, the level of funding provided by the budget and timing of state payments to local governments. Depending on the outcome of the budget negotiations, local governments need to be poised and ready to react quickly. A TRAN may be the only reasonable alternative.
School Law Bullets are a publication of KingSpry’s Education Law Practice Group. They are meant to be informational and do not constitute legal advice. If your school has a question, please consult your local legal counsel or one of the Education attorneys at KingSpry.
