Pennsylvania Borrows Money From Itself in Wake of Empty General Fund
Pennsylvania’s general fund is empty – so it’s borrowing money from itself.
With operating funds at a 10-year low, Gov. Tom Corbett’s administration has asked Treasurer Rob McCord to loan money to the commonwealth’s main bank account.
“The good news is that we have a credit line, the credit line is working, the credit line is allowing people to get paid, schools to get their revenue, etc., and government is functioning, and we have an elegant financial solution and financial instrument,” McCord said.
McCord said this $1.5 billion line of credit will come from the Treasury’s cash investment fund at an interest rate of 0.25 percent. The Corbett administration borrowed $700 million of that Monday and won’t have to pay interest on the remaining $800 million until it is taken out.
But McCord said this is only a short-term solution for a long-term problem.
“Essentially what happened right here yesterday is a very historic moment. We saw the General Fund literally drop below zero dollars,” McCord said. “That’s a big deal. It’s a big deal especially because of the timing.”
According to McCord, when the state needs to borrow money, it has two options. The first is a tax anticipation note, which is when the state goes into short-term debt to finance an immediate project or issue and then repays that debt with the taxes from that fiscal year.
The second option is to borrow from an internal line of credit, which is what Pennsylvania is doing now.
According to the Treasury, if the commonwealth needs money, it’s usually between December and March, and then the government recoups when taxes are paid in April.
The treasury has data on the General Fund budget for the last 14 years. Within this timeframe, this is the third time the state has borrowed internally. The first time was for $800 million in February 2009 and the second was last year for $1.5 billion. The state used a tax anticipation note in October 2010 in the wake of the Great Recession.
McCord said the use of the credit line is prudent, but the need for it this early in the fiscal year is alarming.
“Figuring out how to have a better long-term match between costs and revenues is the only long-term approach,” McCord said. “These short-term fixes, whether they’re good financial instruments or one-time revenue grabs, we’re at the end of that.”
Gubernatorial candidate Tom Wolf released a statement Monday saying Pennsylvanians are suffering from the governor’s “mismanagement and failed leadership.”
"Gov. Corbett's budgets have been filled with one-time gimmicks and a lack of real solutions, resulting in credit downgrades and a $2.7 billion deficit. Now, Gov. Corbett's financial mess has forced Pennsylvania to rely on loans just for the state to pay its bills. It is time for a fresh start and a new approach that will put Pennsylvania's fiscal house in order and get our commonwealth moving again."
But the Corbett administration’s response blamed Wolf for the creation of this procedure.
“Governor Ed Rendell first had to use this procedure to compensate for revenue projections made by Secretary Tom Wolf that were so far off that they actually had to create an independent office to check Wolf’s math. This is just another example of Secretary Tom Wolf’s ‘do as I say, Not as I do’ hypocrisy that would come as no surprise given Wolf’s longstanding blind political ambition and obsession with calling himself Governor.”