Variety learned that “delayed local fund transmittal” during disaster-related economic downturns, further exacerbated by the Covid-19 pandemic, was a major factor behind PSS’s lapse or unrestricted funds.
Although the legislature appropriated PSS’s annual budget each year, the actual cash transfers were delayed monthly or quarterly depending on available local revenue. These delays worsened during the pandemic and disaster-related economic downturn.
Because of these transmittal delays, federal emergency grants such as ESF and ARPA were tapped to maintain operations — including, to some extent, covering costs that were normally funded with local dollars. These federal programs explicitly allowed the use of funds for operational continuity during emergencies, including preventing layoffs, continuing school operations, and stabilizing budgets.
As a result, local funds went unused not because PSS chose not to spend them, but because federal dollars were available immediately while local funds were not, Variety learned.
What later came to be labeled as “lapse funds” were, in many cases, appropriated operational funds displaced by emergency federal support and delayed local disbursements during disasters or emergencies — not savings in the traditional sense, PSS said at the time.
When ESF and ARPA funds became available, they were used not to eliminate any constitutional requirement, but to temporarily ensure operational continuity during disasters and the pandemic.
“This means the federal funds supplemented spending, but did not erase the underlying constitutional obligation. Local funds remained appropriated to PSS because the Constitution requires that they be appropriated. When federal grants covered costs that local dollars were intended to pay for, the local funds remained unused — but remained valid, constitutionally required appropriations, not surplus or optional funds,” a highly placed fiscal expert who requested anonymity told Variety.
‘Did not hide’
In a separate statement, PSS clarified that based on practice, fiscal precedent, and interpretations of its enabling statutes, it believed it had the authority to carry forward unspent funds to support future operational needs, particularly given the extraordinary circumstances that caused a lack of timely local fund transfers.
PSS said it did not hide any portion of its unspent appropriations. These balances were recorded, documented, and reported through standard financial statements, audits, and internal budget reports — including the audit report referenced during the Senate Fiscal Affairs meeting last Wednesday.
“The presence of these funds in the accounts was a structural outcome of emergency conditions and cash-flow situations during the pandemic, and not an act of noncompliance — nor ‘deceitful’.”
PSS’s annual budget is fully appropriated through budget laws passed by the Legislature and signed by the Governor, which constitute legal authority for PSS to use those funds.
Part of 25 percent
Another point raised by PSS is that these “lapse funds” were part of PSS’s guaranteed constitutional share, originating from the constitutionally required 25% revenue allocation.
This makes these “lapse funds” fundamentally different from ordinary appropriations that may lapse under regular fiscal rules, PSS said.
PSS added that it understood it retained authority over these funds because they were: constitutionally mandated, and annually appropriated through budget laws signed by the Governor.
“PSS had a reasonable and widely understood belief that it possessed full authority to carry forward and manage these funds.”
This authority, PSS said, was reinforced by historic practice. For many years, PSS routinely carried forward unspent balances from its appropriations, including during disaster years and periods when federal grants supplemented operational costs.
PSS emphasized that its handling of these funds was not only transparent but consistent with long-standing fiscal practice and the legal understanding that PSS controls its constitutionally guaranteed resources.
