Gov. Tom Corbett and his staff derided as campaign "silly season" the alarm bells Pennsylvania's treasurer and auditor general rang over the state's short-term borrowing last week.
Republican Corbett used that phrase in a gubernatorial campaign debate with Democratic nominee Tom Wolf in Hershey.
"This isn't the first time that this has happened in here Pennsylvania, where we had to borrow against future revenues," Corbett said Monday night. "We've understood that and the Democrats have understood it. Both parties have done it."
State Treasurer Rob McCord and Auditor General Eugene DePasquale, both Democrats, announced on Sept. 16 that the administration borrowed $700 million against a $1.5 billion line of credit Treasury extended for the commonwealth to replenish its general fund, which fell to negative $20 million less than three months into the fiscal year.
"I remain concerned that the need for a loan this early in the budget year is a strong indicator of the bigger budget problems the governor and legislators will face in the coming months and years," said DePasquale.
Corbett cited the need to overhaul the state's system for funding its two major employee pension plans.
Fitch Ratings on Tuesday cited pension liability and budget imbalance in lowering Pennsylvania's general obligation bond rating to AA-minus from AA. In late July, Moody's Investors Service lowered state GOs to Aa3 from Aa2. Standard & Poor's has warned that it, too, could lower the state from AA if pension overhaul remains stalled.
According to Corbett press secretary Jay Pagni, state cashflow financing consists of the short-term investment program and tax anticipation notes. Data shows that Pennsylvania has issued 58 TANs since 1963, its most recent in October 2010 for $1 billion.
The short-term program "saves us the administrative costs of going to market," said Pagni. The commonwealth's last such issuance saved roughly $300,000, according to Pagni. He said McCord praised the use of STIPs during Senate budget hearings.
Pagni added that new cash-flow pressures include the advancement of Philadelphia and other school district payments, changes in federal medical assistance reimbursement timing, and advancing as much Medicaid reimbursement as possible to take advantage of Federal Medical Assistance Percentages rates. Corbett on Wednesday signed a bill allowing Philadelphia levy a $2-per-pack tax on cigarettes to help close its $81 million school-system deficit.
DePasquale, in a separate statement, urged leaders of the state's two pension systems to reconsider the $7.6 billion invested in hedge funds. Last week, the California Public Employees' Retirement System said it would divest itself of the $4 billion it has invested in hedge funds.
Based on their most recently available audited financial statements, according to DePasquale, Pennsylvania's two largest public pension plans, Public School Employees' Retirement System and the Pennsylvania State Employees' Retirement System collectively have investments totaling $77 billion. Of that total, PSERS has $5.7 billion or 12% invested in hedge funds while SERS has $1.9 billion or 7% in such investments.
