State Treasurer Joe Torsella Wednesday announced the release to the General Fund of the full amount of a $750 million loan from Treasury’s Short Term Investment Pool (STIP) to pay the Commonwealth’s bills Torsella authorized on August 3.
He also said the General Assembly “should not be assumed that Treasury will continue to backstop the General Fund unless a responsible revenue package is enacted to balance the budget, or underlying financial conditions improve.”
“Today’s announcement regards the details of a troubling development: the Commonwealth’s need for a $750 million loan from Treasury’s STIP,” said Torsella. “This amount represents an unprecedented borrowing need this early in the fiscal year.”
The STIP loan was released in full to the General Fund on August 15. The Commonwealth has until August 23 to pay back the loan, at an interest rate of 85 basis points.
Treasurer Torsella also released a statement regarding future projections for the General Fund and Treasury’s position on short-term lending.
“While this short-term borrowing will be repaid by August 23, we forecast that without some action, the General Fund balance will again fall below zero by August 29th.
“Treasury continues to project a need for Commonwealth borrowing of as much as $3 billion to fund budgeted operations for approximately 2/3rd of the fiscal year. It is important for policymakers to understand that this is not a gradual decline in some distant future: the General Fund balance is projected to fall to $1.6 billion on or about September 15.
“Treasury’s Short Term Investment Pool is not a Rainy Day Fund; it is neither intended nor managed to be a back-stop to the General Fund. As an investment fund, it is governed by law mandating only ‘prudent’ investments.
“An overly concentrated loan by the Pool to the General Fund—at a time when the underlying budget is $2.2 billion out of balance, revenues are declining, and we are still without an enacted revenue package—would represent a substantial investment risk.
“We know of no historical precedent for an extended loan to the General Fund in a period without an enacted revenue package that is certified to cover expenses.
“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.
“Accordingly, it should not be assumed that Treasury will continue to backstop the General Fund unless a responsible revenue package is enacted to balance the budget, or underlying financial conditions improve,” said Torsella.
Gov. Wolf said earlier in the week his Office was working to avoid another credit downgrade from Standard and Poor’s credit rating service, something he said is likely to occur if the state’s budget issues are not resolved soon.
Wolf said House Republicans need to get back to Harrisburg and finish the budget.
As of Wednesday, there was no indication when House Republican leadership planned to bring members back into session, other than the already scheduled week of September 11.
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