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Senate Appropriations Committee Report
(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
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
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
Here for Treasurer Torsella’s full statement.
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.
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
(Click HERE to view funding charts for DCED, PASSHE and