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Senator Pat Browne


Senate Appropriations Committee Report
August 2017

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(all tables and graphics can be viewed online)


Inside this Edition

  • What to Know about Cash Flow Crisis
  • When General Fund Receives Revenue
  • Budget Growth by Cost Drivers
  • Budget Spending ’98-’99 to ’17-‘18

Cash Flow Crisis in the General Fund

The state Treasurer and Auditor General, on July 8, issued a warning to members of the General Assembly about dangerously low cash balances in the Commonwealth’s General Fund. According to projections completed by the State Treasurer’s Office, the General Fund will have a negative cash balance for about eight months of this fiscal year based on the 2017-18 spending package that became law in early July and baseline revenue estimates, since a revenue package to balance the spending plan has not yet been enacted. 

It is important to note that a cash flow shortfall is different from a budgetary deficit. Even with balanced budgets, organizations large and small routinely experience periods when their spending outpaces their revenues. When that occurs, organizations draw on cash reserves or borrow money from banks for a short period of time. The Commonwealth is no different and regularly experiences cash flow shortages since its largest revenue collection months are in March and April, which are towards the end of its fiscal year.

The Commonwealth ended last fiscal year with $2.3 billion of cash on hand, the lowest balance over the period, including 2008 and 2009 during the depth of the Great Recession. Without additional revenue, that balance is projected to drop to $1.8 billion by the end of this fiscal year, a balance that would be 50 percent lower than the average ending balance from 2005 through 2015.

While cash flow shortages are normal in financially healthy organizations, the Commonwealth has begun experiencing cash flow crunches earlier in its fiscal year and at increasing dollar amounts over the last few years, both of which signify a worsening of the Commonwealth’s financial position.

As the Treasurer predicted, the state Treasury will run out of cash in mid-August, less than seven weeks into the fiscal year. While the initial cash flow shortfall is only projected to last a couple of weeks, the greater concern is that the Commonwealth will run out of cash in mid-September and remain in a negative cash position until March of 2018.

According to the Treasury Department, this year's cash flow situation differs from previous occasions when the Commonwealth had to borrow money early in the new fiscal year. In the past, the state's cash flow balance had an ebb and flow between negative and positive over the course of 12 months. This cash flow shortfall, however, is expected to remain negative for two-thirds of the fiscal year.

In order to continue making timely payments to schools, nonprofits and vendors, the state Treasury has historically provided temporary bridge loans from other funds that have available cash balances. The state Treasury authorized, on August 3rd, a $750 million line of credit to the General Fund.

However, this year, the General Fund cash flow shortfall could be as much as $3 billion, significantly more than the State Treasury has historically been able to provide. If a cash flow shortfall of this magnitude occurs, the Commonwealth will have to secure a temporary loan from an outside financial institution.

What You Need to Know About the Commonwealth’s Cash Flow Crisis

  • Like most organizations, the Commonwealth regularly experiences short-term cash flow shortages.
  • These cash flow shortages have been occurring earlier and at increasing amounts in recent years.
  • This year’s shortage was worsened by last year’s $1.5 billion budget deficit and could be as much as $3 billion. This would force the Commonwealth to go to a bank for a loan or to hold payments until there is sufficient revenue to pay its bills.
  • The Senate’s responsible revenue package fixes last year’s budget deficit and returns the Commonwealth’s cash flow to more historic levels.

Treasurer Statement on Cash Flow Crisis

“This is deeply troubling. While our lending is expected to be for a short two-week period, I am extremely concerned that without action from the General Assembly this month, we will face a more difficult problem within weeks. Our projections continue to show that – without corrective action – the General Fund balance will become negative in early September and will remain so for two-thirds of the fiscal year, with the projected overall borrowing need potentially as much as $3 billion.”

 - PENNSYLVANIA TREASURER JOE TORSELLA

Click Here for Treasurer Torsella’s full statement.


Senate Appropriations

Budgetary Cost Drivers during the Cash Flow Crisis

While the Commonwealth is experiencing a cash flow crisis, the Senate has gone to great lengths to control spending in non-mandated areas. As noted in the table and chart below, spending on mandated programs in human services, pensions and corrections has been the primary cost driver over the last seven years. Over the same time, all other spending has actually decreased by nearly $300 million. The Senate has also worked to reduce the number of government employees, which has decreased by 2,200 since June of 2011.


Senate Appropriations
Senate Appropriations

State Funding for Non-Mandated Programs Decreased Sharply

During the Commonwealth’s financial challenges through the Great Recession, state support for the State System of Higher Education (PASSHE), the Department of Community and Economic Development (DCED) and for State-Related Universities has sharply decreased.  

Only FY 2017-18 funding for the State System of Higher Education and Lincoln University are at higher levels than they were in FY 1998-99. 

(Click HERE to view funding charts for DCED, PASSHE and State-Related Universities)

 


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Contact Senator Browne:

On the Web:
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Allentown
702 W. Hamilton Street
Suite 101
Allentown, PA 18101
610-821-8468
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FAX: 610-821-6798
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Friday
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281 Main Capitol
Harrisburg, PA 17120
717-787-1349
FAX: 717-772-3458
TTY: 800-364-1581
Monday-Friday
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Western Lehigh County
Upper Macungie Township Building
8330 Schantz Road
Breinigsville, PA 18031
610-366-2327
FAX: 610-366-2329
By Appointment Only

Northern Lehigh County
North Whitehall Township Building
3256 Levans Road
Coplay, PA 18037
610-769-5566
FAX: 610-769-5568
By Appointment Only

 

 

 

 


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