Wednesday, December 1, 2010

Auditor General, Treasurer Issue Warnings On Rendell's New $1 Billion Bond Issue

Auditor General Jack Wagner said today he would not give his approval for a $1 billion General Obligation bond Gov. Rendell wants to float to finance Capital Budget projects.
State Treasurer Rob McCord warned Gov.-Elect Tom Corbett the Rendell Administration is proposing to issue a $1 billion General Obligation bond to fund projects they approved as part of the Capital Budget process.
In a letter to Gov.-Elect Corbett, Treasurer McCord said--
"The Rendell Administration has proposed issuing $1 billion in General Obligation debt during this transition time in state government. The proposed debt is to fund ongoing public improvement projects already approved by the Administration. This would be a substantial bond issue. There are potential advantages to issuing debt at this time. And there is also a need for some new debt -- assuming the Corbett Administration intends to continue funding the public-improvement projects already initiated, contracted, and approved.
"The Capital Facilities Fund has a current balance of approximately $307 million. This amount is sufficient to finance the existing pipeline of projects through approximately February 1. If no additional debt is issued, the ongoing pipeline of projects would begin to be adversely affected at that time.
"This matter arises, not just as you prepare to take office, but also as the Commonwealth faces a structural General Fund budget deficit of perhaps $4 billion or more. The proposed debt would make that challenge steeper still. It would require, for the next twenty years, an additional $82 million in debt-service payments out of the General Fund.
"While it is not unusual for outgoing Administrations to issue debt, it also is true that this proposed $1 billion issuance is substantially larger than its predecessors. The largest prior "lame-duck" issuance was in late 2002, when former Governor Schweiker approved the issuance of $500 million in GO debt, prior to Governor Rendell taking office.
"I ask that you review this matter promptly, as I stand ready to weigh the input of your Administration substantially in my own deliberations. I regard transitions to be delicate times in governance -- times when elected Constitutional officers such as myself have a special obligation to be respectful both to the ongoing needs of government and to the preferences and priorities of the incoming Administration. This is especially so during a time of financial crisis."
In a letter to Gov. Rendell, General Wagner said--
"First, both our state and federal government are drawing in debt. The Commonwealth's debt has increased from $6.1 billion as of June 30, 2002 to $84 billion as of November 18, 2010. This is a 39 percent increase in debt. The proposed bond issue would increase our current debt load by another 12 percent to over $9 billion, which, at this time, is too much to put on the backs of our children and grandchildren.
"Second, paying for this debt is being increasing expensive. Next year alone, debt service will consume over $1 billion of state revenues. Borrowing another billion dollars will add at least another $82 million in annual debt payments for the next 20 years. Money devoted to paying off debt is money that is not spent to provide programs and services to seniors, children, families or veterans, those who government must put first in times of deep economic distress like today.
"Third, the next Governor and General Assembly will already face an increasingly challenging fiscal crisis when they take their oaths of office in 2011. The budget gap will be approximately $4-5 billion next year, with similar elevated levels into the future depending on how the gap is addressed. Obligating another billion dollars to debt now would severely constrain the options of the new administration and legislature less than two months from now and for years to come. In addition, the unemployment rate is higher now than it has been in the previous ten years, causing a tremendous strain on the state's finances.
"Finally, as your administration draws to a close, it would appear inappropriate to impose such a major constraint on the operations of your successor. As we discussed, there are at least $300 million in proceeds from previous bond issuances still available to support projects whose funding is truly essential during this transition period. Those proceeds and project priorities must be scrutinized so that we can act in a fiscally responsible, accountable and transparent manner."
NewsClip: Wagner Tells Rendell He Won't Sign Off On $1 Billion Bond

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