Despite having a balanced 2016-2017 budget, Pennsylvania has taken out a loan to pay its bills.
The state's $31.5 billion budget approved in June created revenue increases, including a new tax on video streaming services and higher taxes on tobacco, but some of those have yet to start flowing into the state.
Fearing the Revenue Department’s check book, officially known as its general fund, would hit zero before those new taxes arrived, the department asked the state treasurer to give it a $2.5 billion line of credit.
“Think of this as a pay-day loan,” said Pennsylvania Treasury Department spokesperson Scott Sloat. “So you may make enough money to pay all your bills over the course of the year but at particular times your balance in your checkbook is zero or approaching zero and so you need to get a quick loan to pay for your costs at that time.”
The revenue department immediately borrowed $400 million.
“It’s very possible that we will have to take out more on this line. We do not expect to have to expend the entire amount, but we are looking at hundreds of millions to cover short term expenses,” said Wolf administration spokesman Jeff Sheridan.
The funds must all be repaid by the end of the fiscal year June 30.
Pennsylvania has had to take out similar short-term loans in 15 of the last 24 years, but this is the earliest in the budget year the state has opened a line.
“This year the general fund balance started with $500 million less in the general fund than it did in last fiscal year,” Sloat said. “So basically you’re starting off the fiscal year with $500 million less in the pot than what you started before.”
Gov. Tom Wolf is aware of that structural problem. This year’s spending plan includes about $500 million in one-time measures and loans from other state funds, including one from a fund intended to help cover medical malpractice claims.
“This is a problem,” Sheridan said. “We hope that we don’t have to do things like this and we need more recurring revenue to fix the deficit.”
Wolf, a Democrat, had asked for more tax hikes but was rejected by the Republican controlled House and Senate, and later allowed the budget to pass into law without his signature.
“The legislature and administration has made some progress ... in the last budget, (but) it’s still concerning when the state has to borrow money to pay off its expenses,” Sloat said.
The loan comes with an interest rate of .75 percent, which Sloat notes is lower than the revenue department would have found on the commercial or bond market. The rate is better than the treasury receives on short-term investments.