Pa. treasurer warns legislature short-term loans can't continue

Pennsylvania Election Treasurer
Joe Torsella

HARRISBURG — State Treasurer Joe Torsella warned legislators Wednesday that the state’s primary bank account will likely run out of money again later this month despite a new cash infusion — and that he’ll be reluctant to approve a second loan unless legislators quickly pass a responsible revenue package to balance the budget.

The Treasury on Tuesday released a $750 million short-term loan to the state’s general fund, which was expected to dip below zero. That loan must be paid back with about $141,000 in interest by Wednesday.

Six days after that, on Aug. 29, the general fund will again be empty, Torsella, a Democrat, said in a statement. Torsella said the law requires him to place Treasury money only in “prudent” investments and that that lending more operating money to the state without a balanced budget is too risky.

“To state the obvious, my fiduciary duty as treasurer requires me to ask how the general fund could pay back a loan when approved expenditures exceed expected revenues by $2.2 billion,” he said. “Accordingly, it should not be assumed that the Treasury will continue to backstop the general fund unless a responsible revenue package is enacted to balance the budget, or underlying financial conditions improve.”

Legislators passed late June 30 a nearly $32 billion spending plan but no corresponding way to pay for it. They continue to struggle with how to plug a $1.5 billion shortfall in last fiscal year’s budget, and a $700 million deficit in the new one that began July 1.

Late last month, the Senate, nearly a month past deadline, approved a series of bills that would balance the budget in part by taxing drilling for natural gas, and by raising or imposing new taxes on telephone, electric and gas bills.

The House has not come to session since the Senate bills passed. Majority Leader Dave Reed (R, Indiana) said last week that his caucus has concerns about some of the taxes included in the Senate bills. The House’s next session day is Sept. 11, though members technically remain “on call” and could be asked to return before then.

J.J. Abbott, spokesman for Democratic Gov. Wolf, said, “It is time for the House to finish the job.”

The state typically borrows money from the Treasury to keep cash flow even in the course of a year, but Torsella and Auditor General Eugene DePasquale, also a Democrat, have said they are worried about the timing of this most recent borrowing — only weeks into the fiscal year.

Steve Miskin, a spokesman for House Republicans, noted that Treasurer Timothy Reese authorized a $2.5 billion line of credit in August 2016.  At the time, the budget was balanced.

“Even if we were to pass gaming tomorrow or the shale tax tomorrow, money doesn’t come in tomorrow. That money is months and months away. So no matter what, the situation would still be happening,” said Miskin, who criticized Wolf for not putting more money into reserves last year.

Abbott said it was “just not reality” to blame the governor for the current financial situation

Usually, the Treasury gives the state loans at a lower rate than a private bank would. If the Treasury were to cut the state off, officials would likely have to turn to the private market, where it would encounter higher interest rates that would cost taxpayers more in the long run.

Standard & Poor’s warned last month that it was placing Pennsylvania on a “credit watch.” A downgrade, if it were to occur, could make it more expensive for Pennsylvania to borrow money, various leaders have said.