University Times

A tug of war over how much to borrow to fund state capital budget projects is continuing in Harrisburg. Three Pitt projects are among those being paid for from the accounts that, absent additional funding, will start to run dry early next year.

Gov. Edward G. Rendell has proposed a $1 billion bond issue that he wants to see approved before a federal interest subsidy program expires at the end of December. However, the auditor general and state treasurer are balking at signing off on the amount, which they say is unprecedented for a bond that would be issued during a transition to a new administration.

According to the treasurer’s office, during the past four changes in administration, bond issues that took place within two months of the transition ranged from $208 million to $500 million, averaging $299 million.

In light of tight state finances that include projected general fund deficits, treasurer Rob McCord is seeking input from incoming governor Tom Corbett  before signing off on the deal. McCord also is taking a close look at the amount and the timing of the proposed bond issue, a spokesperson from his office said. Although discussions were continuing, as of press time Wednesday no agreement had been reached.

The governor’s office argues that borrowing the money before the end of the year would save $162 million in interest; the treasurer’s office is questioning the need for $1 billion now. That amount would fund the capital accounts through June or July, according to the governor’s office.

A $1 billion bond issue would raise debt service payments by $82 million a year through 2030.

The borrowing, approved by Rendell last month, would partially fund a $4.8 billion list of public improvement projects, including three currently underway at Pitt, in addition to economic development and other projects across Pennsylvania.

Pitt projects that are being reimbursed from the funds are Chevron Science Center, budgeted for $25 million in state public improvement account capital funds; Benedum Hall, budgeted for $69 million in state funds, and Salk Hall, budgeted for $50 million in state funds. For such projects, the University pays the bills then submits them to the state for reimbursement, said Joseph Fink, associate vice chancellor for Facilities Management.

A delay in issuing bonds to fund these projects could impact cash flow on the projects by delaying reimbursements, something Fink believes would be unprecedented. University administration would need to decide on a course of action if state funding for these projects is halted by the failure to issue a bond, Fink said.

In a Nov. 30 letter to Auditor General Jack Wagner and treasurer McCord, Rendell said speedy approval of the bond issue is needed to prevent projects already underway from being shut down, noting that some accounts within the state’s capital facilities fund are projected to run out of capital fund money in January.

Rendell stated that each outgoing administration since 1968 has issued bonds to provide the new administration sufficient capital dollars for previously approved/ongoing projects.

Because the state issues bonds to fund these capital projects on a cash-flow basis (rather than on a project basis), each bond issue funds a portion of multiple projects that are in progress rather than completely funding any one project. According to the treasurer’s office, that practice obligates the state to continually issue more debt in order to fund new projects and avoid halting ongoing projects.

State treasury spokesperson Corinna Wilson said McCord’s scrutiny of the proposal “is not a judgment on the value or legitimacy of these projects, it’s the cost of the money,” adding that the treasurer has signed off on many prior bond issues.

“It’s all about cash flow. Is this the right time and is this the right program?” she said, noting that Rendell’s proposal to issue the bond now, largely through the federal Building America Bonds (BAB) program, could result in higher costs, rather than save borrowing costs through BAB interest subsidies, as Rendell argues.

BAB is set to expire Dec. 31 and it is uncertain whether Congress will renew it. While Rendell noted that interest rates are rising, Wilson said that’s due in part to the many entities floating year-end bonds and that some analysts believe rates could drop early next year.

Borrowing more than the amount of money needed within a short time adds to the costs associated with that debt, Wilson said, noting that issuing some smaller amount of debt now and some later could be a better option.

“The commonwealth has the money to honor the contracts right now,” Wilson said, noting that the capital funds on hand would cover obligations through January and into early February. According to the treasurer’s office, $500 million-$575 million would be sufficient to cover funding obligations for existing projects through May/June 2011.

Rendell spokesperson Gary Tuma said the bond issue has no impact on Rendell’s ability to approve additional projects nor does it affect any projects in the two capital budget bills legislators approved during the current fiscal year. Those bills include $10 million to construct the John P. Murtha Center for Public Policy, a controversial project slated for the Pitt-Johnstown campus; $20 million for renovations of Thaw, Allen and Old Engineering halls and the Space Research Coordination Center, and $5 million for Fisher Hall renovations at Pitt-Bradford.

Of the proposed $1 billion bond issue, $400 million would go toward public improvement projects, including the projects at Pitt, other state-related universities and State System of Higher Education schools.

The remainder of the $1 billion would be divided as follows, according to a breakdown provided by the governor’s office:

• $200 million for bridge repair projects;

• $155 million for Redevelopment Assistance Capital program projects in progress;

• $114 million for local transportation agencies’ transportation assistance projects;

• $76 million for Pennvest water and sewer infrastructure grants and loans;

• $30 million for Growing Greener II environmental reclamation/preservation projects, and

• $25 million for Pennworks local water supply and wastewater treatment project grants and loans.

—Kimberly K. Barlow