Wolf to securitize Pennsylvania liquor proceeds amid budget impasse
Gov. Tom Wolf, in the fourth month of Pennsylvania’s budget impasse, said Wednesday he would borrow against $1.25 billion in profits from the state liquor system to pay off a prior-year deficit and reduce the need for further short-term borrowing.
Wolf, a Democrat at odds with a Republican-controlled legislature, said he would take further steps to streamline government services without layoffs.
“I’m the one that by default has to run the government,” Wolf told reporters at a late-afternoon press conference in Harrisburg.
The commonwealth is approaching the fourth month of fiscal 2018 without a revenue plan to match the $32 billion budget Gov. Tom Wolf allowed to become law without his signature. The Senate passed a tax-and-revenue package, but the bill stalled in the House of Representatives.
Overall, the commonwealth faces an estimated $2.2 billion shortfall.
Wolf favors a severance tax on natural-gas drilling – Pennsylvania is the only gas-producing state without such a tax. Republican leaders have discussed commercial storage and hotel tax hikes but have not been able to muster the votes in the House.
The commonwealth’s budget woes have triggered the wrath of the capital markets. Two weeks ago S&P Global Ratings downgraded Pennsylvania’s general obligation bonds to A-plus from AA-minus. Moody’s Investors Service rates the bonds Aa3 while Fitch Ratings assigns AA-minus.
"The House Republican foot-dragging has led to one credit downgrade already and warnings of more," said Wolf. "I've had enough of the games."
The state Liquor Control Board transferred $210 million to the general fund last year, according to Wolf.
The three-member control board must sign off on such a move.
“I’ve discussed it with Chairman [Tim Holden] and he said he doesn’t think it would be a problem,” Wolf said.
The governor also said he would look for other state assets to monetize, if necessary.
According to Daniel Berger, senior market strategist at Municipal Market Analytics, the lack of a budget has not yet been a major factor in the trading of Pennsylvania bonds.
Berger cited a recent $3 million block of bonds with a 5% coupon that sold at 1.16%, or 21 basis points above the implied Municipal Market Data rate. A $5 million block of 5s due February 2023, he said, sold at 1.77%, or 53 basis points above implied while $5 million of 5s due September 2026 sold at 2.33%, or 56 basis points over.