HARRISBURG – Noting that “buy it now, pay for it much later” policies negatively impact the state’s credit rating and cost more money, Speaker of the House of Representatives Mike Turzai (R-Allegheny) today lauded House passage of two debt-reduction bills designed to protect Pennsylvania taxpayers.
House Bill 24
, sponsored by Rep. John Lawrence (R-Chester/Lancaster), would hasten retirement of the Commonwealth’s general obligation debt. This will decrease the amount of interest paid and put the state on a path to improve its overall bond rating. It would require the principal for new state debt to be repaid in equal amounts over the term of the bond. Right now, the state 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. This method front loads interest payments and back loads principal payments, just like a 30-year house mortgage,” Turzai said. “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.”
The other bill, 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 per year is deducted from the debt ceiling, ending when that amount is lowered to $3.15 billion in 2021. This bill would continue this trend of reducing 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 means avoiding $736 to $800 million in principal and interest payments or debt service of between $37 million and $40 million per year over a 20-year period.
“RACP started in 1986 with a $400 million debt ceiling. 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,” Turzai said.
The bills now move to the Senate.
Representative Mike Turzai
Speaker of the House
Pennsylvania House of Representatives
Media Contact: Christine Goldbeck
717.787.7977 (office) 570.205.0736 (cell)