Low on cash, Pa. borrows to pay bills
Hitting the cash drawer until next year's checks clear
With the state treasury running low on cash, Pennsylvania has authorized borrowing up to $2.5 billion from auto-registration fees, lottery sales and other special-purpose funds -- "the largest such borrowing in its history" -- so it can keep spending until new cigarette taxes, gambling license fees and next year's income taxes start flowing to Harrisburg, writes Dan Seymour, analyst at Moody's Investors Service, in a report to clients today.
Pennsylvania took the first $400 million last week to prevent its General Fund "from falling into the negative," the state treasurer's office said here.
The Commonwealth is squeezed between fast-growing Medicaid and teacher, police, legislator, and other public-worker pension costs; the chronically slow growth of the state's economy and tax collections; plus lawmakers' refusal to boost income or sales taxes, or to cut school and college subsidies and other popular spending.
$430 million from a cigarette tax hike,
$100 million in fees from expanded casino gambling,
$100 million from letting delinquent taxpayers pay what they owe with reduced penalties,
$200 million from a one-time loan from a state medical malpractice insurance fund,
and a projected 2.5 percent increase in general tax collections, assuming the state's chronically sl0w-growing economy doesn't slow down any further.
The state lacks a budget surplus or a "rainy-day" cash reserve -- one reason Moody's ranks it with Illinois and New Jersey among the states with the lowest credit ratings.
Pennsylvania's Independent Fiscal Office estimates low credit ratings will cost the state's taxpayers $1 billion in higher interest payments -- the premium it has to pay to convince Wall Street banks and private investors to buy Pennsylvania's bonds, compared to less-risky states like Delaware or Maryland -- over the next 20 years.
To fund its short-term operations this winter, the Pennsylvania treasury will borrow from the state's own Pool 99, an investment fund that holds cash collected by 175 state funds -- including the lottery, auto-license fees, water, anti-pollution (PennVEST), oil and gas leasing, college student finance, medical and other state programs -- and invests it short-term in U.S. and corporate debt.
Treasury will pay the pool 0.75 percent interest. The state borrowed $1 billion in a similar financing last winter, repaying at 0.6 percent, and $1.5 billion in the fall of 2014, repaid at 0.3 percent. The rate has gone up with international lending rates, Treasury spokesman Scott Sloat confirmed. Treasury had authorized borrowing up to $2 billion last winter, but only ended up needing half.
Borrowing from the cash drawer is "not unusal" compared to recent borrowings by Oregon, Idaho and other states, Moody's noted. However, the state is extra vulnerable to tax increases or program cuts if tax collections come in below plan next year.
"We expect Pennsylvania to continue relying on [its] treasury to plug holes" until it enacts a better-balanced budget, Seymour concluded.