As equity markets spike to all new highs with each passing day, the number of fiscal crises springing up within local and state governments around the country are reaching somewhat alarming levels, even if they’re being completely ignored by investors. As Reuters notes this morning, the state of Pennsylvania may become the latest example government failure when it runs out of cash later tonight leaving some $860 million worth of bills unpaid.
Pennsylvania could run out of cash on Friday, leaving $860 million of bill payments up in the air as lawmakers continue to argue over a revenue package that is more than two months overdue.
The state legislature passed a $32.5 billion spending plan on June 30, the end of the fiscal year and the deadline for the current year’s budget.
But it failed to agree on a revenue package to pay for those expenses, and the state has been borrowing money from its own short-term investment pool.
Treasurer Joe Torsella has said he will not issue more such loans and that the state’s general fund will likely run down to zero on Friday.
While Pennsylvania will be able to make some payments – including nearly $102 million of debt service costs due on Friday – it will not be able to pay all the bills that are due, said Treasury spokesman Mike Connolly.
An estimated $860 million of payments for various items, possibly including schools and Medicaid, could be delayed until the legislature fully funds the budget.
Not surprisingly, Pennsylvania’s funding crisis has only been exacerbated by a political dispute over whether the state’s budget gap should be filled with extra taxes and/or expense cuts.
On Wednesday night the state House of Representatives narrowly approved a revenue package, but the Senate appeared likely to reject it unless a compromise can be reached over the weekend.
“We plan to take a few days to review the House plan. At this point, we will return Monday,” said Jennifer Kocher, a spokeswoman for Senate Republicans.
The Senate had passed its own plan in July, proposing to close a $2.3 billion budget gap with borrowing and two new taxes: a first-ever severance tax on natural gas and a gross receipts tax on consumer utility bills.
But tax-averse Republicans in the House balked and did not pass their own bill until Wednesday night. It proposes no new taxes but would raise about $1 billion by selling a portion of the funding stream from the 1998 tobacco settlement, in which tobacco companies agreed to pay U.S. states for tobacco-related healthcare costs.
All of which should serve to comfort Pennsylvania public employees that their jobs, and 56% funding pensions, are “money good.”