The Pennsylvania House of Representatives recently advanced two bills aimed at reducing the commonwealth’s debt and protecting Pennsylvania taxpayers.
House Bill 24, sponsored by Rep. John Lawrence (R-Chester/Lancaster), would hasten the retirement of the Commonwealth’s general obligation debt. The bill would decrease the amount of interest paid and assist the state in improving its overall bond rating. It would require that the principal for new state debt be repaid in equal amounts over the term of the bond. Currently, Pennsylvania uses a repayment scheme with lower principal payments in the first few years and much higher principal payments as the loan matures.
“Since 2001, the Commonwealth has used a methodology whereby payments become more expensive as time goes on,” Speaker of the House of Representatives Mike Turzai (R-Allegheny) said. “This method front loads interest payments and back loads principal payments, just like a 30-year house mortgage. House Bill 24 would require the state to use a better method and the result is that we will reduce the debt we pass on to future generations and reduce the amount of tax dollars spent on interest payments servicing that debt.”
House Bill 880, sponsored by Rep. Andrew Lewis (R-Dauphin), would lower the debt ceiling for the Redevelopment Assistance Capital Program (RACP). Currently, $50 million is deducted from the debt ceiling per year until that amount is lowered to $3.15 billion in 2021. This bill would reduce the debt ceiling by $100 million per year, starting in 2022, until the ceiling is lowered to $2.65 billion in 2026.
Reducing the RACP debt ceiling by an additional $500 million would avoid $736 to $800 million in principal and interest payments or debt service of between $37 million and $40 million annually over 20 years.
“RACP started in 1986 with a $400 million debt ceiling,” Rep. Turzai said. “The General Assembly increased this amount 10 times between 1986 and 2010, ultimately hitting its peak of $4.05 billion. Since then, through Act 77 of 2013 and Act 45 of 2017, the debt ceiling slowly has been reduced. This legislation would continue that downward trend.”
The bills now head to the Senate for consideration.