Treasurer Rob McCord: $1 Billion Debt Offering Raises Concerns

Asks Governor-elect Corbett to weigh in, citing current financial crisis, budget woes

HARRISBURG, Pa., Dec. 1, 2010 /PRNewswire-USNewswire/ -- Pennsylvania Treasurer Robert M. McCord sent the attached letter to Governor-elect Tom Corbett on this date.

The letter seeks the Governor-elect's opinion and comments concerning a $1 billion General Obligation bond offering within the next month, as proposed by Governor Rendell.

The Capital Facilities Debt Enabling Act, enacted in 1999 to provide a means for the public financing of certain authorized public improvement projects, establishes the procedures and requirements necessary for the issuance of General Obligation debt in order to finance public projects, including capital projects and redevelopment assistance capital projects. 

The Act designates the Governor, Treasurer, and Auditor General as issuing officials who collectively must consent to the authorization of public debt.  In the event that three issuing officials are unable to agree, the Act permits the debt to be authorized upon the consent of the Governor and either the Treasurer or Auditor General.  Under no circumstances does the Act authorize the Governor the sole discretion to issue General Obligation debt.

Pennsylvania Treasurer Rob McCord is committed to increasing the economic security and prosperity of all Pennsylvanians. Before winning the statewide elected job of State Treasurer, McCord was a successful business leader and entrepreneur. A graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School, he is now focused on strengthening the state's economy, managing investments to get strong returns for taxpayers, and strengthening government efficiency and transparency. To learn more about Treasurer McCord's initiatives and programs, please visit the Pennsylvania Treasury at www.patreasury.org.

December 1, 2010

VIA HAND DELIVERY

The Honorable Tom Corbett

Governor-Elect Tom Corbett Transition Office

Fulton Bank Building

200 North Third Street

Harrisburg, Pennsylvania  17108

Dear Governor-Elect Corbett:

I write today to bring to your attention an important and acutely time-sensitive matter.

The Rendell Administration has proposed issuing $1 billion in General Obligation debt during this transition time in state government.  The proposed debt is to fund ongoing public improvement projects already approved by the Administration.  This would be a substantial bond issue.  There are potential advantages to issuing debt at this time. And there is also a need for some new debt -- assuming the Corbett Administration intends to continue funding the public-improvement projects already initiated, contracted, and approved.

The Capital Facilities Fund has a current balance of approximately $307 million.  This amount is sufficient to finance the existing pipeline of projects through approximately February 1.  If no additional debt is issued, the ongoing pipeline of projects would begin to be adversely affected at that time.

This matter arises, not just as you prepare to take office, but also as the Commonwealth faces a structural General Fund budget deficit of perhaps $4 billion or more.  The proposed debt would make that challenge steeper still.  It would require, for the next twenty years, an additional $82 million in debt-service payments out of the General Fund.

While it is not unusual for outgoing Administrations to issue debt, it also is true that this proposed $1 billion issuance is substantially larger than its predecessors.  The largest prior "lame-duck" issuance was in late 2002, when former Governor Schweiker approved the issuance of $500 million in GO debt, prior to Governor Rendell taking office.

I ask that you review this matter promptly, as I stand ready to weigh the input of your Administration substantially in my own deliberations.  I regard transitions to be delicate times in governance -- times when elected Constitutional officers such as myself have a special obligation to be respectful both to the ongoing needs of government and to the preferences and priorities of the incoming Administration.  This is especially so during a time of financial crisis.

I understand your transition team has a tremendous press of duties.  I likewise have an obligation to fulfill my duties and to decide this matter promptly.  Accordingly, I would appreciate receiving your perspective as soon as possible.  Please be advised that the Administration is seeking to begin the process to enter the bond market prior to December 7, 2010.

My Department stands ready to assist your designees in determining the facts of this issue, should you wish.  Thank you for your consideration of this important matter.

Sincerely,

Robert M. McCord

State Treasurer

SOURCE Pennsylvania Treasury Department