Treasurer Torsella Releases Covid-19 Debt Cost Reduction Review

New report details debt held by Commonwealth authorities, identifies refinancing opportunities to reduce costs by $179.5 million


Harrisburg, PA - Pennsylvania Treasurer Joe Torsella today released the COVID-19 Debt Cost Reduction Review, pursuant to Act 37 of 2020. In preparing this report, Treasury reviewed more than 30 Commonwealth authorities that either issue or hold debt, and identified seven possible opportunities for refinancing of $2.4 billion in outstanding bonds which could potentially reduce costs by as much as $179.5 million. This report represents the first modern, comprehensive review of the full scope of debt held by Commonwealth authorities and related entities.


“The success of Pennsylvania’s future economic recovery relies on informed, prudent fiscal policies today. COVID-19 ended the longest U.S. expansion on record. While some states used those years to prepare for a fiscal emergency, Pennsylvania — except for a laudable initial deposit to the Rainy Day Fund in 2019 — largely did not. COVID-19 lays bare the cracks in our foundation that have been forming for many years, but now put the Commonwealth in a difficult position with substantial cash flow shortfall projections and very little savings for a rainy day. It is my hope that federal policymakers will provide much needed relief to states in the form of revenue replacement in the short run. But it is also my hope that this report serves as a catalyst for a much larger conversation about our Commonwealth’s fragile and inflexible fiscal outlook in the long run.”


Pennsylvania State Treasurer, Joe Torsella

The report provides a thorough overview of debt utilization in the Commonwealth, including an entity-by-entity analysis, and a general assessment of Pennsylvania’s fiscal condition. Act 37 of 2020 directed Treasury with the task of providing an analysis of the debt obligations of Commonwealth authorities and related entities and identifying refinancing opportunities that may provide savings.


Although selected measures of Pennsylvania’s current debt burden aligned with the U.S. state medians over the past decade, the Commonwealth’s Rainy Day fund, pensions obligations, and fixed costs were demonstrated outliers when compared to peer states and nationwide figures. During the expansion, states contributed record amounts to rainy day funds—a vital tool in building a state’s financial resiliency. Pennsylvania made only one significant deposit into its Rainy Day fund since the Great Recession and, while meaningful, the resulting balance is only sufficient to operate the Commonwealth for less than four days. This means Pennsylvania ranks 48th out of 50 states in Rainy Day Fund savings.


In the same period, Pennsylvania’s fixed costs, including unfunded pension liability, continued to increase. In 2018, Pennsylvania’s pension liability per capita is more than double the 50-state median. This led, in part, to S&P Global Ratings concluding that Pennsylvania is fiscally inflexible with nearly half the Commonwealth’s budget allocated to fixed costs, meaning it is not able to shift spending in emergencies as pensions, statutory health care costs, and debt servicing consume the state budget.


Treasury also makes several policy recommendations including a commitment to a long-term plan for strengthening the Commonwealth’s Rainy Day Fund and requiring a biennial study that compares Pennsylvania’s overall liabilities to our peers and the best managed states in the country. These changes are specifically designed to improve Pennsylvania’s ability to address inevitable economic downturns and increase the likelihood of a credit rating enhancement, which would reduce the Commonwealth’s borrowing costs.


Treasury recently launched the Fiscal Health Scorecard on the Transparency Portal, which provides key long-term fiscal health indicators for Pennsylvania, relative to peer states. Pennsylvania ranks in the bottom third of states in the majority of these key indicators.

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