GOP: Borrowing is needed to pay for Rendell-era spending binge
By Eric Boehm | PA Independent
HARRISBURG — The state House is expected to approve an annual capital budget this week, costing taxpayers an estimated $2.3 billion during the next 20 years.
The bill authorizing the capital budget, which funds various construction and so-called economic development projects statewide, passed the state House with a vote of 119-75 on Monday evening. The bill will now go to Gov. Tom Corbett for his signature.
The capital budget finances more than 1,500 ongoing projects.
To fund those projects next year, the state must borrow more than $1.6 billion, which will be paid back over a 20-year period, according to the bill.
The bill’s funding is not project specific, rather it is used on a “cash flow” basis to keep projects funded on a four-to-six-month window, according to the state budget office.
Passing the capital budget was necessary before the state could issue the bonds to fund the projects, wrote state Budget Secretary Charles Zogby in a letter to lawmakers last week.
“Failure to enact the 2011-2012 Capital Budget Act before the holiday recess will lead to the Commonwealth having to shut down thousands of ongoing capital projects and the jobs that go with them, which are providing economic stimulus to the Pennsylvania economy in this trying time,” Zogby wrote.
The state Senate passed the capitol budget in June, but Republican House leaders were concerned about the additional borrowing. Now, GOP lawmakers say the authorization must be passed.
“Our responsibility is to be fiscally responsible and pay the bills for what is owed,” said state Rep. Bill Adolph, R-Delaware, chairman of the House Appropriations Committee.
Steve Miskin, spokesman for House Majority Leader Mike Turzai, R-Allegheny, said Turzai has reservations about the bill, but the “votes will be there” for House passage.
House Democrats generally support the bill and want to see it passed.
“The capital budget act is months overdue, and it is putting thousands of jobs at risk,” said Bill Patton, spokesman for House Minority Leader Frank Dermody, D-Allegheny.
Patton added that Democrats have some reservations about the bill, including the lack of a list detailing the at-risk projects, if the capital budget does not pass.
House Republicans have been reluctant to increase the state’s debt and argued that the ongoing projects to be funded by the new borrowing began under former Gov. Ed Rendell’s watch.
However, halting funding now would leave them half-completed and cost jobs, which the governor’s office has used to leverage the bill’s passage.
Since the bill does not specify which projects will be funded by the new borrowing, any new projects must be itemized and approved by other legislation.
It does, however, lay out the details in broad strokes about how the borrowed funds will be used. The state plans to spend:
- $935 million on buildings and structures;
- $270 million on redevelopment projects;
- $212 million on transportation projects;
- $200 million on bridge projects.
The remaining amount will be divided between flood control projects at $35 million and equipment at $10 million.
Some of the $270 million for redevelopment projects will go to the controversial Redevelopment Assistance Capital Projects, or RCAP, program, which helps finance stadiums, convention centers, hotels and other private developments in the name of “economic development.”
The RCAP program’s funding cap was increased on five different occasions by Rendell, a Democrat, who was governor from 2003 through 2011.
The state holds more than $8.9 billion in outstanding capital debt, which will climb to about $10 billion if the governor signs the bill, as he is expected to.
Exact costs cannot be determined until the bonds are sold, since debt service costs are determined by the interest rates on the bonds at the time of sale.
Nathan Benefield, research director at the Commonwealth Foundation, a fiscally conservative think tank here, said the increase in debt should remind lawmakers to prioritize spending and institute a moratorium on using state borrowing for corporate welfare, like the RCAP program.
"The problem isn't that we spend money on debt borrowing for roads and bridges, the problem is we borrow more and more every year and go deeper and deeper into debt. That is not a sustainable path," Benefield said.
With the addition of another $1.6 billion in general obligation debt, the state’s debt will surpass $10 billion.
This year, debt service payments consumed more than $1 billion of the state’s $27 billion general fund budget.
Even if the state did not borrow any additional funding, the state Treasury estimates that payments on outstanding debt will increase to more than $1.2 billion in 2012 before beginning to decline.
Even without additional borrowing, annual debt service payments would not decline to the 2005 level of $800 million until 2020, according to the state Treasury’s projections.
But the state’s actual debt dwarfs its general obligation debt, most of which is in various off-budget agencies and authorities, such as the Turnpike Commission, the Commonwealth Financing Authority and the Pennsylvania Economic Development Financing Authority.
According to the figures in the state budget, which passed in June, the state’s off-budget 13 agencies and authorities have run up more than $34 billion in debt.
Regardless of the type of debt, taxpayers must pay them back in one form or another.
This story was updated at 7:15 p.m. on 12/19/11 to reflect the final vote on the bill.
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