Treasurer McCord Offers Additional Reforms to Improve PA’s “Broken” Capital Budget Process
Calls recent legislative activity good starting point, but suggests key additional reforms would increase accountability, efficiency, and transparency
Harrisburg – With the General Assembly now considering legislation to revamp the Redevelopment Assistance Capital Program, State Treasurer Rob McCord today offered additional reforms which he said would increase the accountability, efficiency, and transparency of the entire capital budget process.
Treasurer McCord said the answer is not simply to focus on the state’s debt ceiling.
“We need to focus on the commitment process that creates long-term liabilities, and we should act now to impose a disciplined cost-benefit analysis on all capital projects,” said Treasurer McCord.
The Treasurer suggested Pennsylvania should institute an entirely new system to get the Commonwealth to make more productive public investment choices. He outlined three proposals today to accomplish that goal, including a “commitment cap” that limits the state’s ability to initiate liability-incurring projects.
“Because of my career in business, I understand debt can play a constructive role in our economy when it is deployed wisely, but I also recognize our current approach to capital debt is dangerously flawed,” said Treasurer McCord. “This is a great time to innovate and provide broad, constructive, and systemic reforms.
“Debt limits have proven ineffective. The current system already attempts to limit debt, but it consistently fails,” Treasurer McCord noted. “We need a system that instills fiscal discipline with limits on commitments to projects as well as measures of return on investment. This is how we can better control future debt costs and increase productive investments,” the Treasurer explained.
Treasurer McCord stressed that Pennsylvania’s credit level is sound. He noted that leading credit rating agencies have all affirmed the state’s “double-A” rating, and the Commonwealth’s debt service-to-revenues ratio is below the 5% level Standard and Poor’s uses to characterize states as having a “low burden.”
“The core problem,” Treasurer McCord said, “is the way the state chooses and funds projects. Under the current system, the Legislature votes to authorize an initial debt limit for Commonwealth capital projects in one bill, but in separate legislation, lawmakers create a wish list of hundreds of new projects. A Governor may then legally commit funds to any of those wish-list projects, and the resulting commitments usually exceed the original debt limit, so lawmakers must go back and authorize more debt. If they do not, jobs tied to those projects would suddenly end, and the state would be exposed to lawsuits for failures to pay contractual obligations.
“To end this cycle,” he concluded, “we need caps on commitments, not just on debt.”
Treasurer McCord said he believes the current system has created as much as $5.2 billion in unfunded liabilities for existing commitments on projects that have yet to be fully funded. To correct this “broken approach,” he outlined the following three recommendations:
- Limit new funding commitments, not just total debt. Each bill that authorizes funds for projects should include a cap on how much public money the Governor can commit to projects. There is no mechanism of this sort in place now, so such a cap would ensure new commitments do not exceed the state’s debt limit.
- Prioritize projects based upon public cost-benefit analyses. Each project – before it is approved to receive public funds – should be subject to a disciplined and detailed cost-benefit analysis that forecasts probable job creation, potential resulting tax revenues, and quantifiable economic development benefits. The state should first fund public improvement projects with the longest term benefits that are related to core government functions and then invest in the most promising economic development projects.
- Fully disclose project details and list existing liabilities. State agencies with authorized capital projects should fully disclose and describe those projects as part of the annual state budget process, and those agencies should list the total costs incurred, the total remaining unfunded costs, and each major contractor and developer associated with the project. All of this information – along with the cost-benefit analysis – should be available through a publicly accessible website.
Treasurer McCord noted the recently approved House bill specifies types of projects that would be eligible for funding, and it calls for the Budget Office to establish a more stringent review process.
“These are good goals,” Treasurer McCord said, “but we could do more to develop a system that provides the public with a measurable return on investment. We should be able to show them the benefits of each project in terms of jobs, tax revenues, and overall economic impact.
“The answer is not as simple as ‘less debt,’” Treasurer McCord added. “The best, fullest approach would provide a more strategic and disciplined process – and only fund projects that provide a measurable return.”
Media contact: Michael Smith, 717-787-2991 or news@patreasury.gov
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