For the second year in a row, Pennsylvania will have to borrow money from its treasury to cover basic operating expenses.
The Corbett administration’s budget office has taken out a line of credit with the state’s Treasury Department, authorizing transfers of as much as $1.5 billion.
Gary Tuma, spokesman for the Pennsylvania Treasury, said the state hasn’t resorted to this kind of maneuver so early in the fiscal year before.
According to the state Treasury, this will be the third time the state has the internal borrowing has been done twice before – in December 2013, for up to $1.5 billion, and in February 2009, for up to $500 million.
“As far as we know, those are the only two times,” Tuma said. The state borrowed from outside lenders in 2009 and 2010 to cover expenses. Tuma said internal borrowing will save the state money, since it avoids fees, transaction costs, and greater interest payments.
Jay Pagni, spokesman for Gov. Tom Corbett, said such borrowing solves a cash-flow problem at a time in the year when revenues are typically low and spending is high.
“We see this as a short-term financing,” said Pagni. “We continually examine the budget and the spending to make sure we’re keeping in line with the revenues side of the equation.”
But Democratic critics said it’s troubling that the state had to resort to borrowing, albeit internal, just three months into the fiscal year. Senate Minority Leader Jay Costa, D-Allegheny, said it shows problems with the past couple of state budgets.
“We don’t have any money left in any of the pots that are controlled by the administration,” Costa said. “It doesn’t bode well for next year.”
Tuma said the state has seen a downward trend in cash on hand for several years. State budgets have been built on an expectation of revenue that may be too high, and they’ve also relied heavily on one-time sources of revenue to patch budget deficits.
“You can’t pull those rabbits out of a hat over and over again,” said Tuma.
The Corbett administration and Treasury officials called the internal borrowing itself a shrewd financial maneuver. The commonwealth will have to pay interest on the loan from Treasury, but at a low rate. The loaned money would have otherwise gone into short-term investments, which aren’t generating much profit for the commonwealth anyway.
“It is a win-win way of doing it,” Tuma said, “as long as Treasury has the money.”