Pennsylvania state legislature

In this Feb. 4. 2009 file photo, the Pennsylvania House of Representatives at the State Capitol, is seen in Harrisburg, Pa. 

HARRISBURG - One of the Legislature’s most conservative fiscal hawks is doing what would he'd never have done a few months ago: Considering the idea of proposing the state borrow $5 billion to combat the long-term fiscal impacts of coronavirus.  

Despite billions of dollars for states in the federal stimulus package approved by Congress last month, and another stimulus measure potentially in the works, Republican state Rep. Frank Ryan said the state must do more to prepare for the economy and the state’s financial situation to worsen.   

State tax revenues are spiraling downward as record numbers of workers are laid off and businesses shuttered. It’s gotten so bad that Gov. Tom Wolf told 9,000 state workers their paychecks will be withheld by the end of next week.   

The need to balance the budget may prompt the state to borrow more as it faces a revenue deficit that could range from $3 billion to $6 billion, depending on the duration of the downturn, said Ryan, of Lebanon County. That’s between 8 percent and 16 percent of the state budget. 

“The question is, do we go out and borrow it?” said Ryan. 

Time is of the essence. As states around the country are squeezed between the twin pressures of dwindling revenue and surging demand for public services, lenders might make the unprecedented decision that governments are too risky to lend to. 

If the virus continues unabated for months, off-the-charts unemployment rates will deplete state revenues and Pennsylvania state government will face the prospect of cutting programs and potentially massive layoffs. Higher taxes, temporarily at least, become an untenable option with businesses shuttered and tens of thousands out of work. 

House Appropriations Chairman Stan Saylor, a York County Republican, in a letter to GOP lawmakers this week said states are “facing the potential for some of the largest revenue drops in modern history.” 

He said the state may face a recession.  

His Democratic counterpart on the committee, Rep. Matt Bradford, is equally blunt. He said the state could face a multibillion-dollar shortfall by the end of the fiscal year, June 30.  

“The COVID-19 pandemic and the subsequent steps to combat the virus will have a massive effect upon the people of Pennsylvania, its economy, revenue collections and the overall budget,” Bradford told Democratic members this week.   

In large part, it depends on the duration of the virus and the nature of any new federal stimulus bill. 

“It’s really too early to tell. We’re not sure where the federal government is on another stimulus package,” said Jenn Kocher, communications director for Senate Republicans. 

Pennsylvania is getting general stimulus relief from the last act to the tune of $4.9 billion in federal money, but $2.7 billion is for the state and $2.2 billion is for local governments, according to the National Conference of State Legislatures. Kocher said lawmakers are still figuring out exactly how that money may be used. 

Mandy Rafool, a fiscal analyst for the National Conference of State Legislatures, said it must be used “related to coronavirus expenditures.” 

How that is defined is often a work of art in state Legislatures. 

“So far we are still not getting a lot of guidance (from the federal government,)” said John O’Brien, communications director and senior policy advisor for the House Appropriations Committee. 

General Fund revenues for March came in at $4.4 billion -- $295 million less than the Department of Revenue’s official estimate, according to the memo Saylor sent to lawmakers. 

“A lot of this was locked in before COVIT-19 really hit,” O’Brien said. “Overall your bigger impacts are coming.” 

The state’s Rainy Day Fund holds $340 million, on the low end of state emergency funds, according to the Tax Policy Center in Washington, D.C. The governor and Legislature last year agreed to transfer $317 million to the fund. 

“This is an unprecedented situation that is changing by the day,“ said Jeff Johnson, press secretary for the Department of Revenue, an agency under Wolf, “so it’s still a challenge to say with certainty what the impact will be on commonwealth revenues. 

“However, many of the commonwealth’s sources of tax revenue are tied to economic activity, so there is no question there will be an impact,” Johnson said. 

The very worst case is the collapse of bond markets and virtual bankruptcy in some states, said Ryan, a former auditor who previously advised companies how to avoid bankruptcy. He doesn’t at this time include Pennsylvania among states that could go belly-up any time soon. 

Pennsylvania’s bond ratings have been solid.  

The commonwealth last issued general obligation bonds in 2018 and those were rated highly by Standard & Poor’s and Moody’s, said Andrew Abramczyk, a senior analyst with the Commonwealth Foundation, a libertarian-leaning think tank.   

Overall, the state has roughly $51 billion in bonded debt, said Abramczyk, who conducted an analysis of state debt. That doesn’t count the unfunded liability of the state’s pension funds, which top $70 billion, he said. 

Bond ratings measure “the likelihood that bond investors will get their money back, not the potential tax burden or service cuts to taxpayers that might be required to (make) those repayments possible,” Abramczyk said. “So, taxpayers should not be lulled into thinking they’re off the hook because their state has a good credit rating.” 

“Let me put it this way,” said Robert P. Strauss, a professor of economics and public affairs at Carnegie Mellon University. “The worst case scenario takes us back to the widespread defaults and bankruptcies of the 19th century which forced all states but (one) to adopt balanced budget provisions in order to get back into the bond market, and the pandemic of 1918, and the Great Depression of 1930's. State and local financial structures were decimated.”