Harrisburg Mayor Eric Papenfuse displays a $300,000 check from PinnacleHealth, the payment in lieu of taxes (PILOT) represents a increase of more than 100% provided by Pinnacle to the city during the Thompson administration.

A significant increase in the PILOT payment.

House rules committee Tuesday afternoon unanimously voted to approve a two dollar per pack cigarette tax for the city of Philadelphia.

Pa House Rules Committee.

Michael Nutter, Mayor of Philadelphia

This is the first step, the house is the next step, and then to the senate.

Video from Tuesday mornings press event on the state's general fund budget.

Rob McCord and Eugene DePasquale.

Questions from the press, part 1.

Questions from the press, part 2.

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As released by the Office of the Auditor General.

Harrisburg (September 16, 2014) – Responding to a request from the administration, Pennsylvania Treasurer Rob McCord, in consultation with Auditor General Eugene DePasquale, has extended a $1.5 billion line of credit to the commonwealth so it can cope with a General Fund cash balance that plunged below zero earlier this week. The administration borrowed $700 million against that line of credit on Monday.

The state’s main operating account dipped to around negative $20 million Monday morning prior to the transfer. It had not approached zero this early in the fiscal year in more than a decade.

“Pennsylvania is now compelled to borrow unusually early in the fiscal year to pay its daily bills,” said McCord. “To solve the problem in the near term, I have decided, in collaboration with the Auditor General, to make funds available temporarily that will allow the state to continue operating. This will save state taxpayers a substantial amount of money in borrowing costs.”

“As the state’s fiscal watchdog, I am relieved that Treasurer McCord is able to offer a plan to bail the commonwealth out of this immediate budget problem,” DePasquale said. “I remain concerned that the need for a loan this early in the budget year is a strong indicator of the bigger budget problems the governor and legislators will face in the coming months and years.”

Revenue typically comes into the state unevenly during the course of the fiscal year, but Pennsylvania’s cash balance has, on average, been in steady overall decline. The 10-year average for early September is $2.241 billion. Last year it stood at $2 billion in early September – still below average but not as dire – and Treasury was not asked to create a $1.5 billion internal line of credit by the administration until December. This year a loan is necessary three months earlier.

The internal loan of up to $1.5 billion will come from Treasury’s cash investment fund, “Pool 99” (McCord is sole custodian of that fund). The loan will help the administration avoid higher interest rates and fees it would have incurred through the financial markets. It will also allow the administration to draw from the line of credit only as needed, avoiding “negative carry” or interest payments on the full credit line when that amount is not needed immediately.

A government in a weak cash flow position sometimes issues Tax Anticipation Notes (TANs) – short term borrowing that it repays when tax revenues increase further into the year. Under state law, both the Treasurer and the Auditor General must approve the issuance of TANs. Because it would ordinarily be required in the case of such borrowing, McCord considered it prudent to secure the input and agreement of Auditor General DePasquale before extending the line of credit.

The General Fund will repay Treasury by the end of the fiscal year and at a 0.25 percent interest rate that, although modest, will still be enough to generate positive return for the taxpayers and for stakeholders in the Pool 99 fund. Treasury probably would not have earned as high an interest rate from such short-term market investments as it is gaining in this case from the General Fund.

While agreeing to the line of credit, the Treasurer and Auditor General said Pennsylvania’s precariously low cash balance was symptomatic of deeper financial problems that can no longer be ignored.

“Although we are pleased to be able to help the administration during this difficult time with an innovative, win-win solution that saves money, we also recognize this loan really just masks a much larger chronic budget problem that plagues our state,” McCord said. “Like a family buying groceries and paying the heating bill on credit, you can get away with it for a little while, but eventually you have to pay the credit card bill.”

McCord and DePasquale pointed to the cumulative problems created by tax breaks for selected businesses, and reliance on one-time revenue sources. Reductions since 2011 in the Capital Stock and Franchise Tax have cost Pennsylvania’s General Fund an estimated total of $1.8 billion. A natural gas drilling tax, levied at the five percent rate common in other gas-producing states, could have yielded almost $1.6 billion cumulatively since fiscal year 2010-11.

In this budget year, if the state had retained the Capital Stock and Franchise tax at its 2011 level and applied a 5 percent drillers tax, the commonwealth would be on schedule to receive $1.686 billion ($786 million and $900 million respectively) in new revenue. This $1.686 billion is clearly more than the credit line requested by the administration.

“We are in this position because instead of evaluating and considering all available revenue, this year’s budget relied heavily on one-time funding sources and overly optimistic revenue projections,” DePasquale said. “To the average family, it would be like buying a house based on a raise you anticipate, but did not yet receive. Then finding out you can’t afford the mortgage.”

To mask the shortfalls resulting from foregone revenue, the state has used gimmicks such as transfers of excess funds intended for other purposes. While that helps to balance the annual budget, it leaves holes in future budgets because the revenue does not recur year after year. Approximately 8.5 percent of the current General Fund budget is based on one-time revenue sources.

As a result, the state’s Independent Fiscal Office predicted annual structural deficits – incoming revenue lower than expenditures within a fiscal year – of more than $800 million this year and more than $2 billion by the 2018-19 fiscal year if the state remains on its current track.

“As bad as the bottom line is right now, if anything, the state’s true financial condition is even worse than it appears because Pennsylvania has papered over its problems by draining other funds to balance the last several budgets,” McCord said.

Pennsylvania is in a much weaker financial condition than most other states. Many are enjoying budget surpluses while Pennsylvania has struggled to overcome annual deficits that are due mostly to insufficient revenue. The national average among states for the combined General Fund and Rainy Day Fund balances as a percent of expenditures is estimated to be more than 8 percent in 2014. Pennsylvania has no Rainy Day Fund budget reserve and a General Fund balance barely above zero.

“When the budget was passed in July, I said we would regret it by mid-December because the revenue was not matched to the expenses,” DePasquale said. “The fact that the state needs a loan this early in the fiscal year is more proof that we need more realistic budgets in the future.”

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Charles Zogby, Secretary of the Budget.

Questions from the press, part 1.

Questions from the press, part 2.

Questions from the press, part 3.

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Christopher Craig, Chief Counsel Office of the Treasurer.

They have mislead you.

As released by the Office of Harrisburg City Council.

Per the Council President, the original public meeting that was scheduled for Thursday, September 18th (For Interviews) has been postponed.

The new date will be on Monday, September 29th at 5:30PM in City Council Chambers.

Each eligible candidate will be contacted and invited to attend this Public Meeting. Candidates will be given an opportunity (1-2 minutes) to introduce themselves to City Council and explain why they are interested in the vacant seat.

Council will nominate (1) candidate of their choice. The City Clerk will collect and read the names of the nominated candidates who should be prepared to be interviewed further that night.

After the interviews are completed, a decision will be made that night and the selected candidate will be sworn-in.

Photo/Dani Fresh file 2013