Noting potential credit downgrade, Gov. Wolf urges House to finish balancing the state budget

Noting potential credit downgrade, Gov. Wolf urges House to finish balancing the state budget

Author: Jason Gottesman/Monday, August 14, 2017/Categories: News and Views

Gov. Tom Wolf Monday urged House Republicans to return to voting session as soon as possible to finish up balancing the state budget before the Commonwealth faces another credit downgrade.


“They know they’ve got to get to work and we’ve got to get the job done. I think House Republicans are aware of that, I know they are aware of that,” he said. “Standard and Poor’s is threatening a downgrade and I’m trying to hold them off, but they’re looking at what goes on here and, basically, House Republicans need to get back here and get this over the finish line.”


The governor made the remarks following an unrelated news conference announcing a shortened timeframe schools and students will have to spend on PSSA exams.


S&P, one of the country’s largest bond-rating agencies, put Pennsylvania’s bond rating on a negative credit watch in July, stating it would lower the rating should Pennsylvania not solve the political differences that have led to large budget deficits and also pass a budget that was balanced by significant recurring sources of sustainable revenue.


According to the governor, if the state’s credit is downgraded it could have a devastating impact on the Commonwealth, local governments who borrow using the Commonwealth’s backing, and future budgeting.


“If they don’t [come back to balance the budget] all Pennsylvania citizens are going to suffer,” he said.


“Anything, anybody who borrows money with the state’s backing—including the Commonwealth—will face an increase in interest expenses. Given the balance that we have right now—and no one knows exactly what this will mean in higher interest rates—it’s going to mean over a period of time, as old debt comes off and new debt comes on at higher rates, tens of millions to over a hundred million dollars of extra expenditures, extra costs, money that’s not going to schools, money that’s not going to highways and bridges, extra expenses for the citizens of the Commonwealth of Pennsylvania. We can’t afford a credit downgrade.”


To make matters worse, in extending a limited credit-line to the state’s General Fund earlier this month, Treasurer Joe Torsella and Auditor General Eugene DePasquale noted that, absent a significant amount of sustainable recurring revenue, the needs of the General Fund to remain above zero this fiscal year will outpace the ability of Treasury to prudently lend internal funds to keep the state’s main checkbook afloat.


They prognosticated that the General Fund will reach a zero balance once again in mid-September, at which time the state will have to stop writing checks, potentially affecting government operations.


Gov. Wolf argued Monday that “the real issue is will House leadership recognize the responsibility” lawmakers have to Pennsylvanians to deliver a responsible budget package, noting all five parties agreed to the $31.99 billion state spending plan that lapsed into law without the governor’s signature in July and that four of the five parties have agreed to a nearly $2 billion revenue package passed by the Senate later last month that would have largely balanced the spending document.


Meanwhile, speaking to reporters last week, House Majority Leader Dave Reed (R-Indiana) poured some cold water on that hot-button revenue plan, noting its main component—a nearly $400 million boost from consumer-paid gross receipts tax levies on natural gas, electricity, and telecommunications services—was a non-starter in his caucus and House Republicans will likely be devising a counter-proposal that takes into consideration their long-held priorities of gaming expansion revenue led by VGT legalization and further liquor privatization.


“I don’t think it’s any secret that we’re not supportive of the revenue package the Senate passed over,” he said last Thursday. “We have had concerns particularly about the gross receipts tax for a number of years now, we’ve been pretty open with those concerns with the administration, with the Senate, and—quite frankly—I think the House Ds have concerns with the gross receipts tax as well.”


A leading state Senator having some oversight of the VGT issue offered a brief tongue-in-cheek rebuff of the VGT issue in a statement last week announcing a legislative hearing on the issue of rampant illegal VGT use, which has been cited as a cause for the need for legalization and revenue capture of the machines.


“I think it is important that we show the people of Pennsylvania we can address the problem of illegal VGTs before we talk about adding 55,000 new machines into venues across the state,” said Senate Law and Justice Committee Chairman Chuck McIlhinney (R-Bucks). “These hearings are an important first step in that process.”


While Rep. Reed said he hoped the House would come back before the end of August to begin the legislative process of considering the yet-to-be-revealed counter-proposal, no firm date was given and the prospect of holding off until the House’s first announced fall session day of September 11 was not foreclosed upon.