PROVIDENCE — State legislative leaders on Thursday agreed to Governor Gina M. Raimondo’s request to borrow up to $300 million to maintain cash flow as the coronavirus pandemic chokes off sources of state revenue.
“This is a crisis like no other,” Raimondo told the Disaster Emergency Funding Board. “I think it is absolutely necessary that you take this step at this time. I think we don’t have any other choice.”
General Treasurer Seth Magaziner said Rhode Island state government usually maintains about $40 million in its general fund. But with revenues plunging and expenses spiking, the state expects to fall below that $40 million threshold on Monday, and that balance “could fall to zero soon after that,” he said.
“This situation requires immediate action,” Magaziner told the board.
That missing revenue came from sources such as now-shuttered casinos as well as meal and liquor taxes from restaurants and bars that can no longer serve sit-down patrons. In addition, the state delayed its tax-filing deadline to July 15 to match the federal government’s. “We don’t have the liquidity we need,” Raimondo said.
The board — consisting of House Speaker Nicholas A. Mattiello, Senate President Dominick J. Ruggerio, House Finance chairman Marvin L. Abney, and Senate Finance chairman William J. Conley Jr. — voted unanimously to approve the borrowing.
“This is one of the most unusual circumstances in my lifetime,” Mattiello said. “In light of that, I am very comfortable moving forward with this extraordinary solution to this extraordinary problem.”
Mattiello, a Cranston Democrat, emphasized that legislators were not “creating any new spending.” Rather, he said, the measure represents short-term borrowing for cash-flow purposes.
“Revenue is significantly constrained because of the pandemic and expenses increasing at the same time,” he said. “You have the clash of the worst possible set of circumstances.”
Raimondo said she imposed “radical restrictions on our economy” to try to slow the spread of the virus that causes the COVID-19 respiratory illness. And while Rhode Island has not seen as many cases as some other states, those steps have pinched off the flow of revenue, she said.
Raimondo said many large businesses are taking similar steps to line up lines of credit during the crisis, and residents should not view this as a sign of panic. “This is their legislators taking action to secure fiscal stability of the state and ensure we can continue to run the government," she said.
The funding is needed to pay state employees, such as those in the Department of Health and the State Police, who play crucial roles, she said.
Raimondo said the Disaster Emergency Funding Board was set up to take action in rare circumstances such as this. Some have questioned why the action was not coming before the full General Assembly, but she told legislative leaders, “The nature of this public health crisis is if you convened your members, it would pose a grave health risk to every one of them, and that is not in anyone’s interest.”
Questions also have been raised about the constitutionality of such a loan. But, Magaziner said, “We are confident that a loan of this type if allowable.” He said the borrowing would involve an “appropriation pledge” that is not backed by the full faith and credit of the state. Lenders are willing to accept that lower-level pledge because of the circumstances and the state’s track record of repaying debt, he said.
Magaziner said the state is still negotiating with lenders, but in general terms, a line of credit would run for four to 12 months, with an annualized interest rate of about 3 percent. One of the benefits of establishing a line of credit, versus issuing tax-anticipation notes, is that the state can draw down as much as it needs when it needs it, he said.
The action came one day after state officials learned that Rhode Island would receive $1.25 billion as part of a proposed $2.3 trillion coronavirus aid package negotiated by the White House and US Senate leaders.
But Jonathan Womer, director of the state Office of Management and Budget, said it might take a couple of months before the state understands how it can spend those federal funds, and there will be a lag in drawing those funds down. So the $300 million line of credit is necessary, he said.
Rhode Island Republican Party Chairman Sue Cienki said Rhode Island will end up paying more in interest because officials are circumventing the state constitutional requirement for voter approval of most borrowing.
“Rhode Island’s fiscal health was already in poor health before the coronavirus put it into critical condition,” Cienki said in a statement. "Circumventing the constitution, faulty projections, and bad fiscal management by State House politicians will now cost Rhode Islanders millions more in debt.”