State Treasurer Joe Torsella and Auditor General Eugene DePasquale announced Thursday that a $750 million loan has been authorized by the state Treasury to the General Fund to keep the so-called largest of the state’s checkbooks from reaching a zero balance.
“Today I added my signature to the $750 million line of credit that Treasurer Joe Torsella authorized from Treasury’s Short Term Investment Pool (STIP) to prevent the state’s general fund cash balance from hitting zero this month. The fact the state is running out of money in the second month of the fiscal year should be a wake-up call to every elected official in Pennsylvania," DePasquale said.
“My concern goes beyond the cash-flow problem that indicates the state’s unaddressed structural deficit. I am concerned that schools and county agencies across the state are once again worried about funding uncertainties.”
While it might appear to be a large sum of money, it pales in comparison to the $2.5 billion Treasury loaned the General Fund last year.
Over the last several fiscal years the amount and urgency of the short-term borrowing have increased. What was usually viewed as a prudent government tool to make ends meet during difficult tax months is now seen as a symptom of the larger chronic budgeting woes faced by the Commonwealth of Pennsylvania.
What was astounding to both DePasquale and Torsella, however, was not the size of this current loan but its immediacy.
“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,” Torsella said. “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 process that is not yet balanced.”
He added that while the borrowing is likely to cover only a two-week period, projections show that in the absence of additional cash flow, the commonwealth will no longer have the ability to pay its bills by early September and the fund is likely to stay below a zero balance for two-thirds of the fiscal year.
In sum, he said, $3 billion would be needed to be borrowed from Treasury funds to make ends meet through the rest of the fiscal year – something that cannot be prudently done.
“Short-term borrowing of that amount and duration exceeds Treasury’s capacity to prudently lend. Further, to my knowledge, there is no historical precedent for Treasury lending to the General Fund while the budget remains out of balance. Other potential sources of short-term borrowing – such as tax anticipation notes – would be irresponsible under these circumstances,” he added. “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. A credit downgrade is entirely preventable, and I emphasize the need for action now, this month.”
The statement is in line with a warning from the two row officers from earlier this year indicating that absent a substantial revenue boost, short-term borrowing will not likely be possible to the extent needed by the General Fund.
“The House must do the responsible thing and come back next week to address this budget situation. And once they are back, the House and Senate leadership and the governor should immediately lock themselves in a room and work until they figure out a way to provide Pennsylvanians with a balanced budget,” DePasquale added.
The state Senate passed a revenue package with hundreds of millions in recurring revenue for the current and coming fiscal years. However, the state House has said they will deliberately review the product and likely reconvene before the end of the month to vet the proposals contained in the Senate bills.
The House does not have any scheduled plans to return to session, however, until September 11.