Day 52: General Fund Exhausts Full $750 Million Line Of Credit To Pay State Bills
State Treasurer Joe Torsella Wednesday announced the release to the General Fund of the full amount of a $750 million loan from Treasury’s Short Term Investment Pool (STIP) to pay the Commonwealth’s bills Torsella authorized on August 3.
He also said the General Assembly “should not be assume that Treasury will continue to backstop the General Fund unless a responsible revenue package is enacted to balance the budget, or underlying financial conditions improve.”
“Today’s announcement regards the details of a troubling development: the Commonwealth’s need for a $750 million loan from Treasury’s STIP,” said Torsella. “This amount represents an unprecedented borrowing need this early in the fiscal year.”
The STIP loan was released in full to the General Fund on August 15. The Commonwealth has until August 23 to pay back the loan, at an interest rate of 85 basis points.
Treasurer Torsella also released a statement regarding future projections for the General Fund and Treasury’s position on short-term lending.
“While this short-term borrowing will be repaid by August 23, we forecast that without some action, the General Fund balance will again fall below zero by August 29th.
“Treasury continues to project a need for Commonwealth borrowing of as much as $3 billion to fund budgeted operations for approximately 2/3rd of the fiscal year. It is important for policymakers to understand that this is not a gradual decline in some distant future: the General Fund balance is projected to fall to $1.6 billion on or about September 15.
“Treasury’s Short Term Investment Pool is not a Rainy Day Fund; it is neither intended nor managed to be a back-stop to the General Fund. As an investment fund, it is governed by law mandating only ‘prudent’ investments.
“An overly concentrated loan by the Pool to the General Fund—at a time when the underlying budget is $2.2 billion out of balance, revenues are declining, and we are still without an enacted revenue package—would represent a substantial investment risk.
“We know of no historical precedent for an extended loan to the General Fund in a period without an enacted revenue package that is certified to cover expenses.
“To state the obvious, my fiduciary duty as Treasurer requires me to ask how the General Fund could pay back a loan when approved expenditures exceed expected revenues by $2.2 billion.
“Accordingly, it should not be assumed that Treasury will continue to backstop the General Fund unless a responsible revenue package is enacted to balance the budget, or underlying financial conditions improve,” said Torsella.
Auditor General DePasquale
Auditor General Eugene DePasquale weighed in Thursday saying the short term borrowing of $750 million to fill deficits in the state’s General Fund are hurting taxpayers.
“All of us should be deeply concerned about the current situation with our state budget. Yesterday, Treasury released a short-term loan of $750 million to the General Fund as a temporary solution to revenue shortfalls and to keep Pennsylvania’s state government functioning.
“Most worrisome is once the $750 million loan is repaid by the mandatory August 23 deadline Treasury forecasts the state’s general fund balance will fall below zero by August 29 and hit negative $1.6 billion by mid-September. This type of borrowing is like getting a bank loan to buy groceries and could prove calamitous for everyone in the Commonwealth.
“Costs are already getting added to the state budget including $141,000 in interest on the temporary loan. That is money that does not help a single Pennsylvania resident.” Click Here for more.
House Approps Chair Saylor
On Friday, House Appropriations Committee Majority Chair Rep. Stan Saylor (R-York) issued this statement in response to calls for House Republicans to raise taxes-- “Legislators in the House Republican Caucus continue to work on a revenue package to fully fund the state budget.
“While I appreciate that Rep. Carol Hill-Evans (D-York) wants to increase Pennsylvanians’ utility bills that will hurt seniors and low-income families and Auditor General Eugene DePasquale wants to legalize and tax marijuana, I and the Republican Caucus do not believe that is the direction we should be taking Pennsylvania, and our constituents agree.
“Despite a disengaged governor, we were able to pass a budget that funds priorities such as education, while keeping spending growth in check.
“We in the House Republican Caucus are carefully reviewing our options and working with members to create a solution to the problem caused by the governor’s overspending.
“We have been meeting in Harrisburg continually and have been in communication with our Democratic colleagues.”
Understand, everything is on the table, including transfers from environmental funds and redirecting the Act 101 Recycling Fee revenue and other environmental funding streams to the General Fund so House Republicans can pass a budget that has no tax increases.
Understand, everything is on the table, including transfers from environmental funds and redirecting the Act 101 Recycling Fee revenue and other environmental funding streams to the General Fund so House Republicans can pass a budget that has no tax increases.
Gov. Wolf
Gov. Wolf said earlier in the week his Office was working to avoid another credit downgrade from Standard and Poor’s credit rating service, something he said is likely to occur if the state’s budget issues are not resolved soon.
Wolf said House Republicans need to get back to Harrisburg and finish the budget.
What’s Next?
There is still no indication whether House Republican leadership is planning to bring members back into session, other than the already scheduled week of September 11. The Senate is due back September 18.
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