State treasurer says his agency has few options regarding paying state’s bills...

State treasurer says his agency has few options regarding paying state’s bills during budget impasse

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“If people work, they get paid.” March 2016 bill paying

 

That refrain was uttered early and often by state Treasurer Tim Reese during his agency’s budget hearings before the House and Senate Appropriations committees.

 

Reese and others from his agency told lawmakers Treasury is “blind” to the budgetary process, and only ensures the requests for payment received from the executive branch are “lawful and correct.”

 

“Treasury is a reactive agency, we do not originate any of these payments,” said Keith Welks, Deputy State Treasurer for Fiscal Operations and Senior Advisor for Policy.

 

“… we’re not making decisions as to what payments should be submitted to us through requisition for payments, regardless of whether we’re in a budget impasse, pre-impasse, post-impasse, whether there’s an impasse – it doesn’t matter,” Welks said. “We can only pay those bills or other charges that are submitted to us by an agency in the normal process.”

 

Welks explained that process: “An agency, whether it’s Corrections, Human Services or Education, originates a bill, it’s approved by the agency head and is submitted to the comptroller of operations, which is a part of the Office of the Budget. It’s reviewed there and has to be approved by the head of comptroller operations – the auditor for the Commonwealth, as it were, under the Fiscal Code – and then it comes to us. At that point, our charge is to determine, through the Fiscal Review Bureau, that the Treasurer described, whether the request for payment appears to be lawful and correct. If it does appear to be lawful and correct, we approve it, pay it, and the Treasurer issues his warrant for the payment.”

 

And when asked by Rep. Seth Grove, R-York, if the administration could request payment beyond what was budgeted for a program or agency, Welks said it could not.

 

“The payment is blocked,” reacted Welks.

 

Reese told Grove that although $50 billion has been spent through the first seven months of the current fiscal year, “a large amount” of that is “federal and other related special one-time payments that had to be made.”

 

But Reese couldn’t say how much more spending might grow during the next five months, or how much would be state General Fund spending.

 

A hot topic for both Republicans and Democrats, but for different reasons, has been the funding of the state’s prisons, which isn’t being blocked despite half the correctional facility funding having been vetoed by Wolf.

 

The GOP continued to question Wolf’s authority to spend money above his vetoed spending levels, while Democrats maintain he has the constitutional authority to continue spending without legislative authorization. Given the corrections situation, Republicans also sustained their concerns about funding other items that could be considered as presenting health, safety and welfare issues for the commonwealth.

 

Even though Wolf vetoed half of the funding for correctional facilities, Treasury is constitutionally obligated to continue paying such spending requests, said Reese, although he indicated Treasury has been put in a difficult, precedent-setting position.

 

“I would love this to not be the issue,” Reese told senators Tuesday afternoon.

 

Treasury chief counsel Christopher Craig, responding to a hypothetical question from Rep. Seth Grove, R-York, said, in theory, if Wolf had chosen to entirely veto corrections funding, Treasury would still have to pay funding requests for the state’s prisons.

 

GOP lawmakers in the House and Senate said a recent legal opinion from the Governor’s Office of General Counsel suggests the governor had no authority to veto corrections funding at all, since the opinion suggests, constitutionally, all corrections operations must be funded.

 

“It’s not Treasury’s role to determine the wisdom of the veto; we just deal with the aftermath,” Craig told House lawmakers Tuesday morning.

 

Later in the day, Craig told senators the current Treasury decision regarding corrections isn’t a legally-binding decision. He cautioned that if the courts are petitioned, a court could simply rule for or against the Treasury position, but it could also issue a far broader ruling that might affect General Assembly budgetary authority or the governor’s powers within the budgetary process.

 

Several Democrats during both hearings inquired about Reese’s opinion regarding the need to put the state’s fiscal house in order, a theme expressed by Wolf since taking office, most recently in his Feb. 9 budget address. Reese agreed with the need to do so, and pointed to the most recent $2 billion line of credit advanced to the Wolf administration as an illustration of that need (the administration has used $1 billion).

 

“In 2013, the loan amount was $600 million, in January 2014 it was $900 million, in September 2014 – eight months later – it was $1.5 billion, and in January 2016, it’s $2 billion,” said Reese. “So it’s not just that it’s getting larger, you can see the periods, the cycles, are collapsing quicker.”

 

Reese said debt is an appropriate tool to finance cash flow, “but debt is now financing operations, that’s the difference.”

 

According to Rep. Warren Kampf, R-Chester, history shows Reese’s claimed difference doesn’t exist.

 

Kampf got Reese to acknowledge the state has used such borrowing during the last few decades to cover cash flow issues – when expenditures temporarily exceed current state revenues – but Reese maintained those situations were different.

 

“The numbers you gave were within the same or similar range that said it was sort of short-term borrowing because you had the revenues,” countered Reese. He said since 2008, the amounts borrowed have continued to increase, and the “velocity” of that borrowing – how soon it’s needed during the fiscal year – has likewise increased.

 

However, Kampf noted significant state cash flow borrowing – some in excess of $1 billion – that occurred during the past few decades, and with “velocity” not unlike what Reese attached to more-recent borrowing.

 

In a recent analysis, Capitolwire also found cash flow loans to be a relatively regular occurrence, and that such borrowing in the past actually represented a more significant portion of the state’s General Fund than recent borrowing.

 

Sen. Stewart Greenleaf, R-Montgomery, asked Craig if there are any ways Pennsylvania could resolve the current situation in which it finds itself – considering a budget proposal for the coming year while the current year’s state budget remains incomplete.

 

Craig offered a few “tools” he said could “mitigate” the situation “but not solve the problem,” including the use of a default budget each year – to ensure a minimum amount of funding continues to be available – if a budget agreement cannot be reached.

 

“No matter whether you have a budget or not, the state has an inherent responsibility to certain core services and they have to be provided,” said Craig.

 

Sen. Pat Stefano, R-Fayette, has suggested introduction of legislation to create a new fund – to be called Budget Impasse Critical Services Fund – to continue appropriations, in the same amount provided during the prior fiscal year, for programs under the Department of Human Services, local school districts and higher education grants and various expenses of the Pennsylvania State Police, as well as programs and initiatives that receive funds through the State Lottery Appropriations, Tobacco Settlement Funds Appropriations and Motor License Appropriations.

 

Giving the Treasury the statutory authority to pay all debt service payments, not just General Obligation debt, is another option, Craig said, to avoid situations like one encountered this past December by the Commonwealth Financing Authority, which had debt to pay but is part of the budget.