October 12, 2017

State Treasurer Joe Torsella Authorizes $700 Million Loan To General Fund

Treasurer Joe Torsella Thursday issued a statement announcing the authorization of a short-term, five-day $700 million line of credit from Treasury’s Short Term Investment Pool (STIP) to the Commonwealth’s General Fund to be paid back on or before October 20.
Without this line of credit, the Commonwealth would not have been able to make scheduled payments to Medicaid providers.
Short term public borrowing, requires the consent of both the State Treasurer and the State Auditor General. Both fiscal watchdogs signed off on the line of credit today.
“Treasury is legally required to follow the “prudent” standard in making investments with Commonwealth funds. As we have said often, Treasury’s investment pool is not a Rainy Day Fund, and few lenders would consider loans to the General Fund without an underlying balanced budget plan in place to be either appropriate or prudent. We have therefore repeatedly called for action to bring the 2017/18 budget into balance.
“Last week, after the General Assembly failed to pass a revenue package through both chambers, Gov. Wolf announced that he would bring the budget into balance relying solely on his executive authority, without requiring further legislative action. While the announced plan should be no one’s first choice for long-term fiscal policy, neither should be continued financial uncertainty nearly three months into the fiscal year.
“Under these circumstances, and having been presented with preliminary detail from the Governor’s Budget Office concerning the plan to bring the budget into balance, Treasury believes extending this five business day line of credit to be prudent.
“Today’s $700 million line of credit to the General Fund from Treasury’s Short Term Investment Pool (STIP) will be repaid on or before next Friday, October 20th. This will allow the Commonwealth to make critical payments, including to medical assistance providers, without interruption.
“However, the Commonwealth’s General Fund faces a far larger problem by the end of the month. Without additional liquidity, by October 27th, the General Fund is projected to again run out of money, and to remain in that condition for approximately five months. During this time, expenditures are projected to exceed revenue by as much as $1.7 billion.
“My constitutional role in this is to ensure that taxpayer investments are protected; I am not the sixth budget negotiator. Our position has consistently been that the budget must be balanced for Treasury to lend; it is up to legislators and the Governor to determine how that balance is achieved. I continue to have serious concerns, however, about the long-term fiscal health of the Commonwealth when we rely on short-term borrowing to fund the routine operations of government. We should not paper over problems or borrow to fill recurring deficits. As credit rating agencies have warned, failure to address the Commonwealth’s structural deficit and pass balanced budgets on time put Pennsylvania at risk for additional downgrades.
“Accordingly, I continue to believe the appropriate resolution is for the General Assembly to adopt a responsible revenue package to fund the enacted budget, including important and expected investments in higher education. And I urge members, when they return on Monday, to work to do so as soon as possible.
“We will continue our due diligence and monitor all legislative, executive and financial developments carefully in the weeks ahead to determine future actions.” –Pennsylvania Treasurer, Joe Torsella
The announcement marks the second authorization by Treasurer Torsella and Auditor General DePasquale to provide a line of credit from Treasury’s STIP to the Commonwealth’s General Fund.
In August, Treasurer Torsella announced the authorization of a two-week $750 million line of credit. It also comes after Standard & Poor’s (S&P) Global Rating downgrade in September lowering its general obligation rating on the Commonwealth to ‘A+’ from ‘AA-‘.
Auditor General Eugene DePasquale supported Treasurer Torsella's action saying: “I support Treasurer Joe Torsella in the difficult decision of signing off on another loan from the Treasury’s Short Term Investment Pool to help Pennsylvania meet its financial obligations over the next week.
“To be clear, this is not an ideal situation. We are now three and one-half months past the deadline to have a balanced budget.
“As we review the governor’s proposal, anything the treasurer can do to continue to allow the government to function, and possibly prevent a credit downgrade, is important.”