Pennsylvania on edge of missing payments in budget stalemate
HARRISBURG — The state government appeared on the edge, for the first known time, of missing a payment as a result of not having enough cash on hand amid a feud over how to patch a $2.2 billion budget gap.
Gov. Tom Wolf’s office has not revealed how the Democrat will manage through a cash crunch that he has said will leave his administration unable to pay every bill on time, three months into the fiscal year. Beginning Friday, the state’s main bank account was projected to go below zero.
Wolf’s administration has warned the eight insurers that administer benefits for 2.2 million Medicaid enrollees that they might not receive their monthly payments of about $800 million on time. That would force insurers to borrow money to make timely payments to hospitals, physicians and pharmacies that are required by federal law, they say.
The state previously has gone through extended budget stalemates in which a governor had limited authority to spend and, as a result, put off payments, such as in 2015. The state also has, by law, postponed large, scheduled payments, by a matter of weeks, as a one-time maneuver to help wipe out a projected deficit, such as in 2014.
But Friday was expected to be the first known time that Pennsylvania state government has missed a payment as a result of not having enough cash, state officials said. Wolf has authority to spend, under a nearly $32 billion budget bill lawmakers overwhelmingly passed June 30.
In the meantime, the House’s passage of a revenue plan late Wednesday night did not change Treasurer Joe Torsella’s mind about bailing out the deficit-ridden state government with a short-term loan as its budget is out of balance, his spokesman said.
Wolf opposes the House’s revenue plan, saying it fails to address the state’s long-term deficit. The Senate, which in July passed a revenue plan that Wolf supports, was scheduled to return to session Monday. Senate Majority Leader Jake Corman, R-Centre, said little about the House’s plan but pledged swift action and said senators recognize the situation’s urgency.
The House’s no-new-taxes plan differs in one key way: It would tap roughly $600 million from off-budget programs, including accounts for public transit and environmental protection, in place of a roughly $500 million package of tax increases in the Senate’s plan.
The Senate’s plan relies on borrowing $1.3 billion, while the House’s plan counts on a $1 billion up-front sum from what its Republican backers call “selling” an asset: a portion of future state revenue for up to 10 years.
It is not borrowing, they say.
However, such a transaction is still a form of borrowing, public finance professionals say, and the state would still incur risk, pay a transaction fee and pay a premium tied to interest rates and risk.
Steven A. Goldfield, a financial adviser with Municipal Advisor Solutions in Media, said such a deal usually allows a payment term to be extended under certain circumstances.
In any case, the public finance community takes a dim view of deficit financing, whether it is called “borrowing” or not.
“It’s not as uncommon as we’d like,” said Matt Fabian, of Municipal Market Analytics in Concord, Massachusetts. “But it’s usually only distressed governments, Puerto Rico and states trying to balance their budgets with gimmicks (that) do this.”