GOP plan to balance the budget by leveraging state assets, borrowing draws mixed reaction

GOP plan to balance the budget by leveraging state assets, borrowing draws mixed reaction

Author: Jason Gottesman/Monday, June 19, 2017/Categories: News and Views

As the page turns on a fresh week for state lawmakers to work on crafting a FY 2017-2018 budget plan, news bubbled up early Monday that Republican lawmakers—absent the desire for broad-based tax increases, a severance tax on natural gas, or closing tax exemptions—were looking at leveraging state assets and potential borrowing to help balance the coming fiscal year’s spending plan.


The news backs up on comments made by Senate Majority Leader Jake Corman (R-Centre) last week following a budget planning session.


“We always look at asset management, we always look at funds that are available within state government,” Sen. Corman stated last Wednesday. “Obviously, we aren’t looking at any new taxes, so we’ve got to look within and see what we can do to maximize our abilities with the assets that we have.”


Monday, he clarified what he meant.


“I wasn’t talking specifically about anything, but obviously—like the governor proposed and I’m not saying we’re going to do this—the Farm Show building, so things like that,” he said. “From the LCB and how can we reform that to generate more revenue. I’m not specific on anything, but those are ways to take your own assets and make them work better for you.”


As to recent reports that claim that lawmakers are looking to take out what could possibly be a $2 billion bond backed by money from the Tobacco Settlement Fund, Sen. Corman was less committal about the discussions of any such plans.


“Anything and everything is being talked about and we’ll see where it goes,” he said.


His House counterpart, House Majority Leader Dave Reed (R-Indiana), was equally difficult to pin on the issue.


“I think right now, we are looking at it from a three-year perspective: we have the operating deficit in 16-17, balancing 17-18, and then we have got to look ahead to 18-19; so we’re looking at a three-year approach to a budget this year,” he said. “I would say everything’s on the table and we’re not to the point where anything is off the table yet [except broad-based taxes] and hopefully we’ll narrow that gap here quickly and get a budget done.”


By way of background, the Tobacco Settlement Fund was established in the early 2000s as a means to take in payments from the Master Settlement Agreement between major tobacco companies and several states who joined in a lawsuit seeking payments for Medicaid costs paid out due to the detrimental health effects of tobacco.


For years, the money was set aside directly for tobacco cessation programs and health-related funding, but over the years administrations have been transferring more and more of these funds to the General Fund as a means to ensure overall health programs are funded.


As recently as 2013, the Commonwealth was successful in defending a lawsuit brought by tobacco companies claiming that Pennsylvania was not diligent in upholding portions of the settlement agreement.


Currently, Pennsylvania receives about $330 million annually as part of the settlement.


As part of the discussed bond, lawmakers would use what is necessary from the bond issue to close out the current fiscal year’s deficit with the remainder going toward the coming fiscal years to help with balancing issues there.


The revenue picture puts the current year’s deficit at around $1.2 billion with around another $1 billion in new money needed for the coming fiscal year to balance that spending plan.


Democratic leaders were quick to react to the rumored borrowing to help balance the budget.


“I think it’s a horrendous idea,” said Rep. Dan Frankel (D-Allegheny) who sits on the House Democratic Leadership team as caucus chairman. “Basically, it’s an acknowledgement that you can’t cut your way out of this budget, it’s an acknowledgement that you need at least $2 billion; so, why don’t you do it the right way, the way every other governor did it until Tom Corbett—Republicans and Democrats—you’ve got to look at raising revenues through some kind of broad-based source.”


He added the move would raid a source of revenue for sick people and research institutions like the University of Pittsburgh.


“These institutions have used that money to leverage federal dollars that create jobs and economic growth around those universities and those research institutions and we’re going to take that away,” he said. “It’s really not a right way to do things and it’s a one-time deal. You’re going to have to pay the piper next year.”


In speaking at the Pennsylvania Press Club Luncheon Monday afternoon, Senate Minority Leader Jay Costa (D-Allegheny) was more measured.


While he said he believes there will be some combination of leasing and leveraging of state assets and borrowing to balance the budget, it’s not the solution he thinks is sustainable.


“It’s not the optimal solution for generating revenue or taking care of bills; I think the optimal solution is making the tough decision and putting up the votes for a recurring revenue stream that’s going to allow us to do what needs to be done,” he said. “Absent that, when you are not going to do broad-based taxes, you aren’t left with many more options.”


He said if borrowing is done right with proper discretion, it could be beneficial.


Specifically, to the Tobacco Settlement Fund, he said using those funds “is almost as if we are breaking a commitment” to fund recipients by utilizing the money in this way.


“That troubles me, that concerns me, and I think it’s something that’s going to continue to be objectionable as this moves forward,” he said.


Borrowing money for the state budget is not unheard of.


In fact, for the current fiscal year, the budget relied on a $200 million loan from a surplus in the Pennsylvania Professional Liability Joint Underwriters Association, a non-profit created under the Mcare law that, according to its website, “offers medical professional liability insurance covering the provision of health care services in the Commonwealth of Pennsylvania.”


Certainly, however, none of this is a done deal and many hurdles remain before any of these concepts become actionable budget plans. Chief among them is some in the Republican caucuses of both chambers—even some in leadership—that have staked their legislative careers on not borrowing money to balance budgets.


This is also a period of time when a lot of ideas are floated and then never brought to fruition.


Take this heed from Sen. Corman as he exited an elevator Monday morning following a meeting with House Majority Leader Reed.


“One thing I would say, just for this week, is that nothing is alive and nothing is dead,” he said. “There’s a great deal of uncertainty on everything. You may rule something out one day, the next it’s back.”