Urges passage of a responsible revenue plan, warns of unprecedented lending
Harrisburg, PA – Pennsylvania Treasurer Joe Torsella announced today that he has authorized a short-term two-week $750 million line of credit from Treasury’s Short Term Investment Pool (STIP) to the Commonwealth’s General Fund from August 14 to August 23. Without this line of credit, the General Fund would fall into negative territory during that period.
“The necessity to step-in and financially prop up the General Fund just six weeks into the fiscal year is extraordinary and without precedent. Cash flow borrowing this early and of this magnitude has not happened in the last twenty-five years. As a state, we once again find ourselves in uncharted waters, not only having to borrow so early in the fiscal year, but doing so with an underlying General Fund Budget that is not yet balanced.
This is deeply troubling. While our lending is expected to be for a short two-week period, I am extremely concerned that without action from the General Assembly this month, we will face an even more difficult problem within weeks. Our projections continue to show that – without corrective action – the General Fund balance will become negative in early September and will remain so for two-thirds of the fiscal year, with the projected borrowing need potentially as much as $3 billion.”
Pennsylvania Treasurer, Joe Torsella
A copy of Treasurer Torsella’s full statement is available HERE.
Noting that borrowing of that magnitude exceeds Treasury’s capacity, that there is no historical precedent for Treasury lending to the General Fund without an approved revenue package, and that other borrowing, such as through the public markets, would be irresponsible without an approved final budget package, Torsella urged action by the General Assembly to pass a responsible revenue package.
Potential Credit Downgrade
As recently as last month, Standard & Poor’s placed the Commonwealth’s credit rating on “negative watch.” In its statement, S&P warned that, “[i]f legislators enact a budget that relies on what we view as optimistic assumptions or one-time sources, we would likely lower the rating.” Another downgrade to the Commonwealth’s credit rating would increase debt service costs and limit future borrowing options. A credit downgrade from Pennsylvania’s current AAA- to A or less by S&P would drop it to a low not seen since 1978 and make the borrowing costs more expensive to taxpayers.
No Short Term Public Market Borrowing
Short term public borrowing, such as Tax Anticipation Notes, requires the consent of both the State Treasurer and the State Auditor General. As Treasurer Torsella has previously stated, it would be financially irresponsible to go to the public markets to borrow for the Commonwealth’s operating expenses without a finalized 2017-18 budget and revenue plan in place.
Expected Needs Exceed Treasury Capacity
Without borrowing money from the public markets to support the General Fund, a line of credit from Treasury’s STIP is the primary tool to pay for the continuing operations of the Commonwealth during the current fiscal year. Without legislative action on a responsible revenue package, the total borrowing needs of the General Fund could approach $3 billion over the next eight months, beginning in early September. This amount is beyond the prudent lending capacity of Treasury’s investment pool. Further, there is no historical precedent for Treasury lending to the General Fund without an approved revenue package in place.
Expenditure Cuts Will be Necessary
Without sufficient money in the General Fund, the Commonwealth will be forced to forgo certain expenditures beyond traditional government operations, including, for example, support for Penn State, Pittsburgh, Temple and Lincoln Universities, discretionary grants and other deferrable expenses.
“There are limits to what Treasury can prudently do to bolster the General Fund. I therefore urge action by the General Assembly to pass a responsible revenue package.”
Pennsylvania Treasurer, Joe Torsella
Editor’s Note: Torsella’s statement emphasized that even immediate action would take months to impact the General Fund; using the proposed tobacco settlement fund borrowing as an example, an illustration of the delayed impact of legislative revenue measures on the General Fund balance is available HERE.