Regional News

Rendell: Just One More Budget

Those looking for more Philadelphia Eagles post-game commentary from Pennsylvania Gov. Edward Rendell may get it after he leaves office in January, but before then he must finalize a tough fiscal 2011 budget and fill a $472.5 million transportation funding gap for next year.

The Democratic governor, who will finish his second term in January, spoke with The Bond Buyer on Thursday in his office at the statehouse in the capital city of Harrisburg about his priorities over the next few months, what lays ahead, and some of the highlights of his tenure.

The night before, Rendell, who served as Philadelphia’s mayor from 1992 to 1999, returned to municipal politics by appearing before Harrisburg’s City Council at an open meeting regarding the city’s heavy debt load. The state’s top executive pressed the seven council members to work quickly to help the city tackle its fiscal troubles by leasing assets to raise needed revenue rather than seek bankruptcy or state oversight.

Harrisburg has not paid debt service on $282 million of outstanding incinerator debt that the Harrisburg Authority sold with the city’s guarantee. Assured Guaranty Municipal Corp., the insurer of the bonds, and Dauphin County, co-guarantor of much of the debt, have been repaying bondholders. Local officials are now working on a forbearance agreement to give the city time to create a refinancing plan.

In his office the next day, Rendell said other cities and towns could avoid similar debt woes by seeking experienced, outside financial advice.

“We find that so many smaller municipalities get in trouble because they make financial decisions without the proper guidance and advice,” he said. “So, I think Harrisburg should be a lesson to all cities that they’ve got to get good financial advice and understand the consequences of large decisions. For example, so many smaller cities got involved in swaps and they didn’t really understand the ramifications and its dangers, even in big cities.”

While derivatives contain certain risks, the governor believes that local governments should be allowed to use them when necessary and with state oversight. That view goes against a swap-ban initiative pending in the legislature. In response to Pennsylvania school districts that have been forced to make costly swap payments, legislators are working on a measure that would ban all local governments from using such financing tools.

The state itself cannot enter into swaps and derivatives, in keeping with its old-fashioned borrowing policy of selling only fixed-rate debt on a competitive basis. Independent state bonding authorities can use swaps and derivatives.

“If I were king of the world, everybody could use them under certain limited circumstances,” Rendell said in his gravely voice. “They shouldn’t be used as an everyday financing tool, but there are certain times when the use of them might be available. With cities, for example, it might be the state auditor general or the state treasurer would have to sign off on these.”

Rendell and the General Assembly are currently in the midst of hammering out a fiscal 2011 budget, which the state must pass by June 30. General consensus is that the deadline will come and go, as it has for some time now. Pennsylvania has not passed an on-time budget in eight years.

This time, lawmakers must address an estimated $1.6 billion funding shortfall in the $29 billion fiscal 2011 spending plan. Rendell believes the state should close that gap with additional spending cuts, borrowing from certain funds or closing out funds, and increased revenue. He is seeking a tax on natural-gas extraction in the Marcellus Shale region, a tax on cigars and smokeless tobacco, ending separate business reporting that allows corporations to shelter profits from taxation — called the Delaware loophole — and terminating a 1% discount that vendors’ receive when remitting their sales tax receipts.

That $1.6 billion budget deficit would grow if Congress fails to extend Federal Medicaid Assistance Program funds through June 30, 2011. Pennsylvania is relying on nearly $850 million of FMAP funds. Without them, Rendell says he would be forced to lay off 20,000 workers — including teachers, police and firefighters — as the state cuts municipal aid.

The governor believes the debate over extending FMAP funds is part of an overall fear of increasing the national deficit, yet he maintains that the federal government and states must spend now to help spark job creation. A long-term deficit reduction plan should then follow, he said.

“There’s so much obsession right now about the deficit that it’s hard to get D.C. to give money to any project without finding some way to pay for it,” Rendell told reporters after the City Council meeting. “And since they’ve very tax-averse in Washington, it’s very hard for them to come up with ways to pay for it ... I think its short-sighted because, right now, job creation is the most important thing. Debt can wait a year. Until we begin dealing with debt, we should make sure we’re out of this recession first.”

In addition to the fiscal 2011 budget, Pennsylvania will need to find $472.5 million to support transportation projects next year after the federal government rejected the state’s request to implement tolls on Interstate 80.

Rendell said the current recession has forced states and cities to evaluate what their essential functions are, and it will probably continue to influence the way states and municipalities operate in the future once their revenue streams begin to generate stronger returns.

“I think a lot of the lines that have been eliminated that weren’t core functions, I think many of those lines won’t come back,” Rendell said. “I think state and local governments have learned what their core functions are and what aren’t their core functions. So I think that even if growth returns to levels that were here for the most part of the decade, I think that you won’t see certain things come back, certain types of spending come back. “

Along with gains in student performance, health care access, and green-job growth, Rendell said his administration has helped to diversify the state’s economy, revive mid-size cities, and invest in economic development.

After his tenure ends, Rendell may participate in more sports television. He is an analyst in an Eagles post-game show on cable. He also plans to teach more at the University of Pennsylvania, where he lectures on politics.

The 66-year old governor has started writing a book of humourous stories about the process of government along with his connections with presidents and others.

“It’s not a kiss-and-tell,” he said. “It’s a funny book in which I’m going to use humorous incidents to try to teach, like I have a chapter on how government regulation can be too overbearing and too nonsensical.”



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