Pennsylvania’s unpaid bills are piling up, and the state is about $375 million short of funds needed to pay contractors and vendors on infrastructure projects, Budget Secretary Mary Soderberg warned yesterday.
Gov. Edward Rendell’s administration cannot head to market with a $775 million, new-money general obligation bond sale until the legislature passes the Capital Debt Act. As much as 80% of the sale will consist of taxable Build America Bonds and officials are hoping to sell the debt by the end of December. But for that to happen, lawmakers must approve the borrowing plan early next week.
“Because of the delay in enacting the fiscal 2010 Capital Debt Act, each of these capital programs is running out of bond proceeds to provide payments to contractors and municipalities for ongoing capital projects,” Soderberg said yesterday in a letter to legislative leaders.
She urged them to immediately act on the debt act, saying, “In total, we are currently unable to process about $375 million worth of payments.”
The House approved the bond bill, HB 1418, in early October. The measure now sits in the Senate Appropriations Committee and awaits a final vote on the Senate floor. The upper chamber is set to reconvene Dec. 15. Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, said Senate leaders are considering Soderberg’s request.
Pennsylvania’s fiscal year began July 1 and the state’s capital funds are depleted because the General Assembly has not approved the bond bill during the past five months. If lawmakers can send the bond bill to the governor early next week, officials could then price and close the bonds before the end of the calendar year, Rick Dreher, the state’s director of the bureau of revenue, cash flow, and debt, said yesterday.
The state will not look towards using IOUs, he said.
“We would not get in the business of issuing IOUs. Those invoices have been processed and are sitting at the state treasurer’s office awaiting sufficient funds in those capital accounts,” he said. “So until we get the debt act enacted and issue the bonds, there’s insufficient bond proceeds remaining to pay those invoices, so they will remain embargoed, so to speak, at the state treasurer’s office.”
Dreher said the state may have to pay additional fees such as late penalties and interest charges on certain overdue bills. The delayed passage of HB 1418 is due to disagreements over taxation in a table games initiative that would allow for blackjack and other such games to be played at racetracks and casinos. Lawmakers have said they would not move on the bond bill until they reach agreement on the table games measure.
Switching to a traditional tax-exempt structure rather than using taxable BABs could help the state execute the transaction more quickly, since BABs require a longer issuance period, Dreher said. Even with the legislative delay, the administration still plans to use BABs.
“I think rates are favorable enough that it’s in our financial interest to include BABs in the issuance,” he said.