Broke Pennsylvania to resume revenue plan talks

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With Pennsylvania still mired in an ugly, three-months-old budget stalemate and its general fund around zero, the state Senate on Monday plans to consider a House-approved revenue package strikingly different than its own.

Gov. Tom Wolf, meanwhile, expects this week to postpone a planned $581 million payment for the commonwealth's share of pension obligations to public school teachers and employees. On Friday, Wolf said he held back roughly $1.2 billion in payments to Medicaid program providers.

Wolf, a Democrat, and the Republican-controlled legislature have struggled to close a $2.2 billion budget gap for fiscal 2018. In July, Wolf let a $32 billion spending plan become law without his signature, asking lawmakers to approve a revenue package later.

In July, the state Senate approved a revenue package, which Wolf favored, that included new taxes on natural gas production and energy consumption, combined with tobacco-settlement borrowing.

The House of Representatives last week passed a revenue plan with no tax increases but Wolf objected, saying it merely transfers $600 million from off-budget accounts, provides no recurring revenues and fails to grasp Pennsylvania's long-term deficit.

House Majority Leader Dave Reed, R-White Township, said Wolf has been absent during budget discussions.

"I've only seen the governor for two minutes at Ag Progress Days over the last two-and-a-half months," said Reed, referring to an annual agricultural exhibition at Pennsylvania State University. "You know, it would be nice if he participated in this process at some point."

House Minority Leader Frank Dermody, D-Cheswick, said account transfers raise red flags.

"I question the legality of raiding accounts that are restricted by law for special purposes," he said.

State Treasurer Joe Torsella and Auditor General Eugene DePasquale said they would authorize no more short-term borrowing. Torsella in August authorized a two-week $750 million line of credit, which the state repaid at an interest rate of 85 basis points.

In a letter to Wolf, Torsella noted that since 2012, S&P Global Ratings has either downgraded Pennsylvania’s credit rating or placed it on a negative credit watch five times.

S&P on July 6 placed its AA-minus general obligation rating for the commonwealth on credit watch with negative implications. Moody’s Investors Service and Fitch Ratings rate Pennsylvania Aa3 and AA-minus, respectively.

Wolf in August authorized the borrowing of $700 million from the commonwealth's motor license fund, including $241 million to make its distribution to its school districts. This, said Moody’s, "illustrates the challenges challenges facing Pennsylvania's $32 billion operating budget and the difficulties it may have making distributions to school districts for the remainder of the year."

Public school districts rely on state aid for 43% of annual revenues on average. "[They] in in recent years endured prolonged and unprecedented delays in state funding due to Pennsylvania’s recurring budget stalemates," said Moody's.

In addition, said Moody's, the motor license fund loan is credit negative for three types of Pennsylvania Turnpike Commission bonds that fund revenues secure: the MLF-enhanced third lien bonds, oil franchise tax bonds and registration fee bonds.

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Budgets Ratings Tom Wolf Commonwealth of Pennsylvania Pennsylvania