State can now access $2 billion line-of-credit
Pennsylvania now has access to a $2 billion line-of-credit to shore up the general fund and avoid a negative cash balance of more than $900 million after the state treasurer extended it Wednesday.
Gov. Tom Wolf’s administration immediately drew $1 billion against the line-of-credit after Treasurer Timothy Reese’s action, according to a statement from Reese’s office. Without Reese extending the line-of-credit, the state’s general fund cash balance could have reached a $922 million negative balance next week.
The decision was precipitated by the state finally releasing $3.3 billion in funding Monday for school districts and social service agencies after Wolf issued a line-item veto of the budget passed by the Republican-controlled Legislature. The state had been without any budget since July 1 and higher education funding as well as revenue streams still need to be resolved.
Not releasing funding earlier created an “artificially elevated balance” that disappeared when funds were distributed, the treasurer’s office said. “Without the line-of-credit, it is likely that the general fund would have maintained a negative balance until the usual seasonal tax revenue spike in early spring,” the statement said.
Reese and Auditor General Eugene DePasquale said the financial situation illustrates the need for the state to address the structural budget deficit. Both men pointed to the fact that this is the second time in 16 months that Pennsylvania has had to borrow money to pay its bills.
In September 2014, the Treasury loaned the state $1.5 billion to supplement the general fund.
“These shortfalls keep getting larger and are happening more frequently,” Reese said. “Borrowing to meet operating expenses is not a responsible or sustainable solution.”
DePasquale said the state needing to borrow just halfway through the fiscal year “is a strong indicator that the commonwealth’s unsustainable structural budget deficit continues to grow.” The deficit and the budget impasse “should be a wake-up call to everyone involved that it is time to come to a resolution on these critical issues.”
Reese extending the line-of-credit “is a more fiscally prudent avenue to provide short-term funding instead of paying fees and interest on the open financial markets, but it underscores a long-term budget problem that must be addressed,” DePasquale said.
The Treasury statement also noted that the state’s Independent Fiscal Office (IFO) said expenditures will surpass revenues over the next five years and warned that the state’s credit rating will continue to be downgraded because of the unaddressed structural deficit.
As for those credit downgrades, the statement recapped how credit-rating firm Moody’s cited the deficit and an “extreme” political climate as obstacles to a budget “when it lowered its outlook on Pennsylvania’s credit in October.” Downgrades mean the state will pay more to float bonds and the IFO has estimated that costs to borrow could increase by $1 billion over the next 20 years.