As Pennsylvania anticipates a long-awaited fiscal 2010 budget to pass the legislature within two weeks, the state is moving forward with borrowing plans for the current fiscal year.
Last week, legislative leaders and Gov. Edward Rendell announced they had reached a tentative agreement on the delayed budget, offering a clearer picture of the state's borrowing strategy for this year.
Passage of the fiscal 2010 budget, now estimated at $28 billion, would bring resolution to the state's fiscal 2010 capital budget. Once Rendell signs the two plans into law, officials can move forward with a $700 million general obligation bond deal now set for November.
Pennsylvania anticipates issuing $2.32 billion of new-money debt this year for capital improvements, up from $1.91 billion of bonding in fiscal 2009. The state sells new-money bonds and notes on a competitive basis.
"As part of the budget enactment process, the General Assembly will pass our annual Capital Debt Act," said Rick Dreher, director of the bureau of revenue, cash flow, and debt in the Budget and Administration Office. "So I will expect to bring probably a $700 million new-money, GO bond sale to market sometime in November."
In addition to the November bond transaction, Dreher calculates that the state will need approximately $500 million of tax anticipation notes to help boost the state's liquidity.
Pennsylvania last sold short-term debt in 1998, but decreasing revenue during the past year whittled down its coffers. At one point, Dreher was looking at issuing roughly $1 billion of Tans in November, depending on the budget outcome and the amount of recurring and one-time revenue enhancements.
"We would first look to internally self-finance any short-term cash needs, but we may be looking at around a $500 million Tan or so in the December-January time frame," Dreher said.
"So, we're still working through how the proposed budget deal will impact cash flow," he said. "A lot of the sources of revenue for the proposed budget deal, a significant amount of them, are one-time revenues, some of which are already in our cash balance, so they really don't help us or hurt us from a cash-flow perspective. So we're still working through it."
One-time revenues include using the entire $755 million rainy-day fund either this year or spread between fiscal 2009 and fiscal 2010. Another $700 million would come from a malpractice abatement fund.
New recurring revenue proposals include delaying a phase out of the capital stock and franchise tax, increasing the cigarette tax by 25 cents per pack, and implementing table games at the state's slot casinos.
Officials peg the additional gambling revenue at $200 million and $120.7 million in fiscal 2010 and fiscal 2011, respectively.
While overall casino revenue in the U.S. declined in fiscal 2009 to $4.45 billion from $4.87 billion in the prior year, Pennsylvania's casino revenue increased by $38 million in fiscal 2009 to reach $99 million, according to a Sept. 21 Nelson A. Rockefeller Institute study on national gambling revenues.