Recovering Creatively and Innovatively

Dear Colleagues:

As we near the end of a whirlwind of a year, I, like many of you, have been reflecting on its challenges and considering the lasting impacts that they will have on the futures of our states and nation as a whole. The novel coronavirus changed the way we do business in many ways – from the overnight switch to remote work, to quickly executing pandemic relief programs for jobless constituents such as Federal Pandemic Unemployment Compensation (FPUC) and Pandemic Unemployment Assistance (PUA), and finally, our new focus as a society on doing the right thing like wearing a mask and practicing physical distancing in the hopes of keeping our friends and neighbors healthy. For State Treasurers, as we look to 2021, while uncertainty remains and cases continue to grow, we must look to the long-term impacts of this year on state coffers, how our states prepared, if at all, and what lessons we can take with us to the future.

For the first time in Pennsylvania, the Treasury Department produced a detailed analysis of debt obligations of the Commonwealth and identified refinancing opportunities. Called the COVID-19 Debt Cost Reduction Review, our report was produced in the midst of the COVID-19 pandemic, and takes the economic reality of this time into consideration. And the reality is that Pennsylvania, like so many other states, is struggling to recover from a downturn the likes of which have not been seen in more than a decade. After reviewing more than 30 different Commonwealth authorities and related entities that either issue or hold debt, our team found seven opportunities to refinance debt, which could lead to as much as $179.5 million in reduced costs. States of all sizes have experienced drastic revenue shortfalls as a result of needed COVID-19 mitigation efforts. Any opportunity we see for cost savings in the next several years is critical to recovery.

Based on similar debt studies in Texas, Florida, and Maryland, our report also provided key metrics on the Commonwealth’s debt profile – such as debt per capita, debt service ratio, and debt as a percentage of state personal income – and explored some of Pennsylvania’s weaknesses in fiscal flexibility, which our leaders and legislators can learn from as we recover as a nation from this economic crisis. To evaluate Pennsylvania’s standing in these areas, the Commonwealth was compared to its peer states—as well the best managed states (“AAA” states as determined by the ratings agencies) and 50-state medians. Our peer states included neighboring states that are similar in size and economic diversity, while the AAA median denoted states that have maintained a AAA credit rating from the three main credit rating agencies since 2010. Lastly, to build on our findings, I outlined critical steps the Commonwealth can take to improve its finances and prepare for future economic downturns, including the creation of a biennial debt affordability study, building the Commonwealth’s Rainy Day Fund, and a commitment to OPEB trust fund(s).

I sought the office of Treasurer in Pennsylvania because I believe in the power of good government to make a difference. Four years later, while I’m still a hopeful guy, it’s clear that comprehensive pandemic relief to states from Washington could still be a long way off – if it comes at all. That’s why our recovery as a nation tomorrow is directly dependent on the fiscal decisions that states make today. At a time when unemployment is up and financial security is down, we cannot make cuts to lifeline programs that replace lost income, provide food, and keep the heat and lights on this winter. It’s up to states to creatively and innovatively rise to this challenge, while fulfilling our responsibilities to the people of our states.

Sincerely,

Joe Torsella
Pennsylvania State Treasurer