Pennsylvania’s general fund will drop to zero Friday if no budget is in place, said state Treasurer Joe Torsella.
Torsella warned that Pennsylvania risks $860 million of missed or delayed payments and that the commonwealth would be in line for more bond-rating downgrades. He called for immediate legislative action.
“The can has been kicked down the road for far too long, and now we have run out of road,” he said Tuesday.
Leaders of the Republican-controlled House of Representatives, meeting this week for the first time in nearly two months, were divided over how to counter the Senate-approved $2.2 billion tax-and-revenue plan to balance a $32 billion state budget that Democratic Gov. Tom Wolf let become law without his signature.
They met late Tuesday night in hoping to produce a package for a floor vote Wednesday.
In a joint letter to Wolf and the General Assembly, Torsella and state Auditor General Eugene DePasquale noted that since 2012, S&P Global Ratings has either downgraded Pennsylvania’s credit rating or placed it on a negative credit watch five separate times.
S&P on July 6 placed its AA-minus general obligation rating on credit watch with negative implications. Moody’s Investors Service rates the commonwealth's GOs Aa3. Fitch Ratings on July 26 maintained its AA-minus rating.
Pushing the stalemate deeper into the fiscal year will aggravate the degree of difficulty, Fitch said Wednesday. “Continued delays in addressing this discrepancy hamper the effectiveness of revenue or expenditure changes by applying them to less of the fiscal year,” Fitch said in a commentary.
Wolf said earlier that a spending freeze could affect schools, emergency systems, volunteer fire companies and road repair.
“Continued disruption to the commonwealth’s finances, in particular its inability to timely pay obligations, risks an additional credit downgrade,” Torsella and DePasquale said in the letter.
Pennsylvania has often been late with budgets the past few years, notably in fiscal 2016 when the spending plan was nine months behind schedule.
“While it is not uncommon for states to have periodic structural imbalance, Pennsylvania's chronic misalignment and eroding general fund position, particularly during a period of economic growth, demonstrate a pattern of financial mismanagement,” said S&P analyst Carol Spain.
Torsella authorized a two-week, $750 million line of credit from Treasury’s short term investment pool to the commonwealth’s general fund from Aug. 14 to Aug. 23. The commonwealth paid back the loan on Aug. 23 at an interest rate of 85 basis points, Torsella said.
Torsella said he and DePasquale, both of whom must sign off on the short-term borrowing, were “disinclined” to support such further loans.
The Treasury’s line of credit from its short term investment pool began as a cost-effective alternative to public market tax anticipation notes, according to Torsella.
“The commonwealth’s cash shortfalls have grown in duration and amount over the past three years, and as a result, the use of the Treasury’s line of credit has evolved well beyond its original intent,” Torsella added.
He said a $700 million transfer from the motor license fund to the general fund, and the non-enactment of roughly $647 million in appropriations to the state-aided and state-related universities have artificially propped the general fund balance.
“In spite of these two measures, the general fund will continue to struggle, barely posting balances above zero for much of late October through March.”
The Senate package would authorize $1.3 billion of borrowing against future revenues from Pennsylvania’s share of the 1998 tobacco settlement. The plan would also raise an estimated $100 million annually by imposing a new tax of 2 cents per thousand cubic feet of Marcellus Shale natural gas.
The revenue bill would also expand casino gambling, telephone service and online sales.