State Treasurer Authorizes $800 Million Line Of Credit For State General Fund; Warns About Low Fund Levels

On March 6, State Treasurer Joe Torsella announced the authorization of an $800 million line of credit from Treasury’s Short Term Investment Pool (STIP) to the General Fund, expiring within 23 days, to ensure adequate liquidity in the General Fund and the ability of the Commonwealth to meet its expenditure needs.

The Treasurer and Auditor General both signed off on the line of credit. An initial draw of $650 million on the line of credit was made on Thursday.

“This line of credit represents a normal and short-term cash flow need related to typical seasonal patterns in revenue collection, and is the only short-term borrowing expected in this fiscal year,” said Torsella..

“Looking ahead to next fiscal year, however, I am concerned about the projected level of the General Fund,” warned Torsella.  “As the General Assembly considers next fiscal year’s budget, these projections underscore the need to align revenues with expenses responsibly, and avoid the use of one-time measures.

“If next fiscal year’s anticipated low starting balance in the General Fund is realized, the Commonwealth will likely encounter liquidity demands as early as September, necessitating additional short-term borrowing by the General Fund,” Torsella explained.  “The Commonwealth needs a structurally balanced budget, and a focus on rebuilding reserves, such as the Rainy Day Fund, that may be needed to weather future storms.

The General Fund balance started Fiscal Year 2018-19 at $3,141,346,608. Current projections show that the General Fund balance will drop to $2,180,309,238 to close out the current Fiscal Year and begin the next one; a reduction of $961,037,370.

While projections may change, if realized this would be a ten-year historical low in the ending/opening balance of the General Fund.

“Treasury will continue to provide short-term liquidity to the General Fund when appropriate and consistent with our investing guidelines.”

The line of credit is set to a variable interest rate equal to the Securities Industry Financial Markets Association (SIFMA) 7-day Municipal Swap Rate. The current SIFMA Municipal Swap Rate is 1.75 percent.