Pennsylvania is running out of options without a revenue package to fund its $32 billion budget, its top financial officials said.
State Auditor General Eugene DePasquale and Treasurer Joe Torsella – both of whom must approve any emergency funding by Gov. Tom Wolf – said the commonwealth may soon have to choose which bills it’s going to pay.
“He and I are having discussions about when the state is at their next point when they get significantly below, into the negative cash balances, in mid-to-late September,” DePasquale told reporters in Harrisburg on Friday. "At some point, if they don’t get a budget passed, we can’t sign off on additional borrowing,
“We hope it forces them to act on completing the budget. That’s the real goal.”
Torsella last week completed an emergency $750 million transfer from the commonwealth’s short-term investment pool to the general fund. The state has until Wednesday to pay back the loan, at an interest rate of 85 basis points.
He projects that without a full budget, the general fund will fall below zero by Aug. 29 and reach a $1.6 billion negative balance by mid-September.
“Treasury’s short-term investment pool is not a rainy-day fund; it is neither intended nor managed to be a backstop to the general fund,” Torsella said. “As an investment fund, it is governed by law mandating only ‘prudent’ investments.”
An outsized loan to general fund while the underlying budget is $2.2 billion out of balance amid declining revenues and uncertainty about passing a revenue package would represent “a substantial investment risk,” he said.
Bond rating agencies have encircled Pennsylvania, frequently citing late and imbalanced budgets, and a combined unfunded pension liability of its two major pension funds that DePasquale has estimated at $62.5 billion.
S&P Global Ratings on July 6 placed its AA-minus Pennsylvania GO 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.
"Given the larger size of the structural gap [6.3%, based on the recent spending plan] and the commonwealth's weaker liquidity position to begin fiscal 2018, from a credit perspective, deliberations are even more important than in past years," said S&P analyst Carol Spain.
Wolf, DePasquale and Torsella are Democrats. Republicans control both legislative branches.
Wolf in late June signed the fiscal 2018 budget, saying the revenue plan would come later.
The state Senate in late July approved a revenue package that 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.
It would also expand gambling, telephone service and online sales.
The House of Representatives opposes any taxes. Speaker Mike Turzai, R-Marshall Township, has no immediate plans to reconvene his chamber in Harrisburg.
“Every day goes by, we get less and less confident,” said DePasquale, a former state representative from Pittsburgh. “It doesn't mean you can’t fight for something you believe in, but we’ve got to get something done here."
While assigning mixed grades to the Senate bill, the liberal-leaning Pennsylvania Budget and Policy Center said it "can keep the state from slipping farther under water."
The free market-oriented Commonwealth Foundation said tax hikes would not prevent credit downgrades.
"Governor Wolf claims we can’t afford a credit downgrade, but taxpayers can’t afford another $600 million tax bill," it said in a commentary.