Office of the Budget Announces Short Term Investment Program Loan

March 06, 2015

Harrisburg, PA – Due to ongoing issues with Pennsylvania’s structural finances and past budgetary practices, the Office of the Budget (OB) today announced it found it necessary to take a Short Term Investment Program (STIP) loan in order to be prepared to meet payroll obligations in the near-term.

Office of the Budget and the Pennsylvania Treasury renegotiated their current STIP agreement by adding $500 million to the total amount that the Commonwealth may access as needed to provide cash flow in the General Fund. With the added $500 million, the maximum amount of the current STIP is $2 billion.

OB and Treasury do not expect that the Commonwealth will need to access the additional $500 million. OB and Treasury estimate that on Friday, March 13, 2015, cash flow in the General Fund will reach approximately $100 million. The added $500 million will provide a reserve to ensure that there is sufficient cash flow to meet all obligations payable from the General Fund during this period.

The Wolf Administration is committed to addressing the Commonwealth’s fiscal challenges in an aggressive, responsible and comprehensive fashion so these types of financial decisions may become a thing of the past. This is why the Governor has introduced a bold budget proposal that will balance the budget without temporary fixes or other gimmicks used by past administrations to adequately fund programs and meet payroll obligations.

A STIP is a short term financial mechanism that provides for Pennsylvania to manage its cash flow while the commonwealth continues to receive revenue collections. Businesses of all sizes use similar mechanisms to provide sufficient cash flow for their operations when their revenues do not line up with the payments they need to make. Each STIP investment in the General Fund is an exercise of Treasury’s investment authority in the Fiscal Code.

The Pennsylvania Constitution requires that Pennsylvania have a balanced budget, and OB manages to ensure that requirement is met.  The STIP process saves the commonwealth significant administrative costs. For example, in Fiscal Year 2013-14, OB and Treasury saved taxpayers approximately, $300,000 by using the STIP process instead of issuing Tax Anticipation Notes to raise money for cash flow (discussed below). The Commonwealth pays each STIP investment (principal plus interest) to Treasury in March or April.

OB actively manages Pennsylvania’s budget and tracks state spending relative to revenue receipts. If spending is outpacing the receipt of revenue, OB can then take various steps to manage the amount of spending, including adjusting payment dates and freezing spending.

Pennsylvania’s largest tax collection months of the year are March (corporation taxes), April (personal income tax), June (personal income tax quarterly estimated payments), December & January (holiday sales tax) and September (personal income tax quarterly estimated payments).

MEDIA CONTACT: Jeff Sheridan – 717.783.1116

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