Pennsylvania nears zero balance with no revenue package in place
HARTFORD, Conn. -- With the state's general fund balance reaching zero and political leaders at odds over how to plug a $2.2 billion budget hole for fiscal 2018, Pennsylvania on Friday awaited word on how Gov. Tom Wolf will handle the situation.
The commonwealth, no stranger to late budgets, is three months tardy with a revenue package to balance a $32 billion spending plan that Wolf let become law in late July without his signature.
State Treasurer Joe Torsella and Auditor General Eugene DePasquale have said they would authorize no more short-term borrowing. Earlier in the week, they projected a zero balance for mid-September.
In July, the state Senate approved a revenue package that included new taxes on natural gas production and energy consumption, combined with tobacco-settlement borrowing. Wolf favored the bill. House of Representatives leaders, though, remained away until last Monday.
While the House passed a revenue plan Wednesday night, Wolf said it does not grasp Pennsylvania's long-term deficit.
Republicans control both branches of the legislature. Wolf is a Democrat.
The two parties this past week even bickered over the dress code for floor debate, with the House parliamentarian ruling on a jacket and tie.
In a joint letter to Wolf and the General Assembly, Torsella and 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. In a commentary Wednesday, the agency said a final fiscal 2018 budget heavily reliant one-time measures would be "inconsistent with Fitch's expectations of progress in addressing the structural budget gap."
"Credit rating agencies continue to take notice," said Roy Eappen, a senior analyst at Wells Fargo Securities.
Eappen said slower revenue growth, which results in the need to reduce spending, is central to many budgetary disagreements.
According to the National Association of State Budget Officers, executive budget proposals for fiscal 2018 would only increase state general fund spending by 1% from the prior fiscal year.
That, he said, represents the smallest increase recommended by governors since fiscal 2010.
Upcoming gubernatorial elections, said Eappen, will probably complicate any meaningful fiscal change. New Jersey and Virginia will elect new governors this year. Gubernatorial elections will be in 36 states in 2018, including Connecticut, Pennsylvania, Illinois and Wisconsin.
"Until then, meaningful reform, including substantial tax increases or major spending reductions, is likely to be avoided," said Eappen.