Rhode Island looks to close on $300 million emergency loan

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Rhode Island officials expect to close on a $300 million emergency loan within days after its Disaster Emergency Funding Board approved Gov. Gina Raimondo’s request for the stopgap measure in light of a COVID-19 related cash crunch.

The obscure board consisting of four top lawmakers — authorized in 1973 and categorized as "military affairs and defense" but never convened until Thursday — approved the request unanimously after a brief hearing at the state capitol in Providence.

While declining specifics because of ongoing negotiations, state General Treasurer Seth Magaziner said Rhode Island has generally been offered less than one month LIBOR plus 2%, or 3% annualized at today’s interest rates.

“The lines of credit that we are being offered generally run four to 12 months,” Magaziner said.

“The lenders that we have been talking to have indicated that they would be willing to accept an appropriation pledge," said Rhode Island General Treasurer Seth Magaziner.

According to Magaziner, the state’s general fund balance could dip below its typical $40 million minimum by Monday. “The balance could fall to zero soon after that.”

Approval of the two-year loan came despite some questions about the constitutionality of the approach.

“It’s not lost on you that I’m asking you to do something extreme,” said Raimondo, a Democrat.

The board members — also Democrats — are House Speaker Nick Mattiello, Senate President Dominick Ruggerio, House Finance Committee Chairman Marvin Abney and Senate Finance Committee Chairman William Conley Jr.

With many businesses and two Twin Rivers casinos shuttered, and the income tax filing deadline postponed until July 15, the state has experienced significant reductions and delays in expected revenue as a result of the coronavirus outbreak.

The board’s vote does not authorize spending not already budgeted this fiscal year, officials said; it provides liquidity so the state can meet its obligations while revenues are delayed.

When the federal government deferred tax-filing deadlines by three months, Rhode Island followed suit.

“We’re looking at a low spot on available liquidity in late May,” said Jonathan Womer, Raimondo's top budget advisor. The filing-date change, he said, moves $300 million in cash receipts further out into July. “From a cash-flow standpoint we have expenses now that are coming in, that would normally depend on that revenue.”

The governor later reported 33 new cases of the coronavirus, bringing the state's total to 165. Of the 23 patients hospitalized, she said, nine are in intensive-care units and six are on oxygen-providing ventilators.

Raimondo also said she would sign an executive order requiring anyone entering Rhode Island from hotspot New York state by ground transportation means must provide personal information to authorities and self-quarantine for 14 days. National Guard personnel are already intercepting arriving passengers at T.F. Green Airport in Warwick.

Gary Sasse, a state revenue director under Republican Gov. Donald Carcieri in the early 2000s, and also the former executive director of the Public Expenditure Council, requested a legal opinion from the Rhode Island’s Supreme Court or Attorney General Peter Neronha.

Such a ruling, he said, could resolve the conflicts between the state constitution and the 1973 statute that formed the Disaster Emergency Fund Board.

“[It] may be helpful when the state goes to the financial markets during this period of economic stress resulting from the coronavirus pandemic,” Sasse said in a letter to the board.

Sasse is now the founding director of the Hassenfeld Institute for Public Leadership at Bryant University.

Article VI, Section 17 of the state constitution permits Rhode Island to borrow funds in anticipation of receipts. It also stipulates the repayment of such borrowing in the same fiscal year the borrowing occurs. Raimondo is requesting a two-year loan.

"A legally nonbinding appropriation pledge is comparable to a moral obligation," state Republican Party Chairwoman Sue Cienki said. "Because we are circumventing the constitution, Rhode Island will pay a higher interest rate."

According to Magaziner, who consulted with the state’s bond counsel, the maneuver is legally sound.

This borrowing, he said, is a line of credit and not a tax-anticipation note. As such, it carries an appropriation pledge, not a full-faith-and-credit general obligation pledge.

“An appropriation pledge is considered a lesser pledge than a general obligation pledge,” Magaziner said. “The lenders that we have been talking to have indicated that they would be willing to accept an appropriation pledge.”

As opposed to a tax anticipation note, he added, the state could borrow less based on needs. “Given the uncertainty we face in the coming months, having that flexibility is very attractive.”

Moody's Investors Service rates Rhode Island's general obligation bonds Aa2. Fitch Ratings and S&P Global Ratings rate them AA, All three assign stable outlooks.

According to U.S. Sen. Jack Reed, D-R.I., Rhode Island is in store for $1.25 billion as part of the federal government’s rescue package.

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Sell side Rhode Island Gina Raimondo Coronavirus Seth Magaziner General obligation bonds Nicholas Mattiello
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