Farm Show loan focus of hearing
HARRISBURG — Despite his repeated statements that there are a lot of good things upon which to focus, much of Budget Secretary Randy Albright’s budget hearing last week centered on — and in a heated way at times — a $200 million loan secured by the administration at the end of January.
The more than three-hour hearing featured a lot of House Republican questions about the Farm Show Complex lease/leaseback deal that, as explained during state budget hearings, is neither a deal involving the Farm Show nor a lease/leaseback arrangement.
The straight-up borrowing of $200 million, according to Albright, will end up costing the state during the 29-year payoff period a total of roughly $391.5 million (the $200 million principal and $191.5 million in interest).
GOP legislators argued the administration had no legal authority to assume the debt with which the General Assembly is now saddled, along with the responsibility to find the funding to pay for it, a price that will ultimately be borne by the state’s taxpayers.
The commonwealth on Jan. 30 completed a financing agreement with Municipal Real Estate Funding LLC, which was formed for the purposes of the deal by Lancaster-based Blackford Ventures LLC. Blackford was chosen through the competitive request for proposals process started on Oct. 13, 2017.
While the RFP clearly states the contract was to be for “a financial transaction with the commonwealth in the form of a lease/leaseback of the Commonwealth’s Farm Show Complex,” Department of General Services Secretary Curt Topper said during his agency’s House budget hearing that the Farm Show complex property is in no way involved in the deal, and the deal is basically a loan, not a lease or lease/leaseback.
Albright claimed the legal authority for what was ultimately done by the administration came from the Fiscal Code that was passed in conjunction with the current FY2017-18 state budget.
Section 1726-G of the Fiscal Code, referencing “funds transfers,” states: “During the 2017-2018 Fiscal Year, $300,000,000 shall be transferred from amounts available in special funds and restricted accounts to the General Fund. The transfers under this section shall be in accordance with the following: (1) the Secretary of the Budget shall transmit to the State Treasurer a list of amounts to be transferred from special funds and restricted accounts to the general fund. (2) Upon receipt of the list under paragraph (1), the State Treasurer shall cause the transfers under paragraph (1) to occur.”
Albright explained the administration took that as “unfettered authority” to find $300 million, and the administration in turn created, on its own, a new restricted account from which $200 million would be transferred. It then borrowed $200 million from Blackford/MRE to provide the $200 million to be transferred from the new restricted account.
“We would have much preferred a severance tax … that was our clear preference but that was not the choice of the General Assembly,” was an answer Albright repeatedly offered (or at least variations on it) when queried about the financial arrangement, suggesting the administration would not have sought the loan had the General Assembly approved a severance tax the Budget Office estimates would have delivered recurring revenue of $200 million to $300 million.
However, Rep. Brad Roae, R-Crawford, later got Albright to acknowledge Gov. Tom Wolf, as part of his FY2017-18 budget plan, proposed both a severance tax and a Farm Show lease/leaseback deal.
Albright said the administration believes the interest rate will be about 4.33 percent, but was later forced to admit under repeated questioning by Rep. Fred Keller, R-Snyder, that rate has yet to be set, and won’t be set until that second part of the transaction — in the credit market — is completed.
The completion of the transaction isn’t expected to occur until the summer due to the timing of other commonwealth borrowing activity in the credit market this year, including the recent $1.5 billion Tobacco Settlement Fund securitization.