PROVIDENCE – Rhode Island state leaders have authorized the borrowing of up to $300 million through a line of credit with a commercial bank to stabilize the state’s general fund until taxes start coming in in July.
The unusual step, approved Thursday by the Disaster Emergency Funding Board, came at the request of Gov. Gina M. Raimondo, who said state efforts to reduce infections of the new coronavirus that causes COVID-19 have come at the expense of the economy.
The closure of state casinos has affected one of the top three revenue sources for the state. And state income and sales taxes are expected to decline, as well, due to business closures and layoffs.
Because the United States government has decided to allow people to postpone payment of their federal taxes until July 15 – an action mirrored at the state level – the state of Rhode Island does not have sufficient revenues to maintain a $40 million buffer in its general fund, state officials explained.
“It’s absolutely necessary you take this step at this time,” she said. “In fact, I don’t think we have any other choice. … We don’t have the liquidity we need.”
As explained by Rhode Island Treasurer Seth Magaziner, the line of credit will allow the state to borrow funds, as needed, until taxes begin arriving. It offers more flexibility in repayment than a tax anticipation note, which has to be paid within the fiscal year.
He said lenders are prepared to offer the state a line of credit. He did not identify them, but said the interest rates would be around the range of 3% annualized.
“The benefit of [a line of credit] as opposed to a tax anticipation note is we draw only what we need when we need it,” he said. “Given the uncertainty we face in the coming months, having this flexibility is very attractive.”
Jonathan Womer, the state’s budget director, said Rhode Island will hit a low point in liquidity in late May without the additional funds. The need was created by the federal decision to postpone the date taxes are due to July 15, instead of April 15. The state had to follow suit, he explained.
“From a cash flow standpoint we have expenses coming in now that would normally depend on that revenue,” he said.
The Disaster Emergency Funding Board is comprised of House Speaker Nicholas A. Mattiello, D-Cranston, Senate President Dominick Ruggerio, D-Providence, House Finance Committee Chairman Marvin Abney, D-Newport, and Senate Finance Committee Chairman William Conley, D-Pawtucket.
Mary MacDonald is a staff writer for the PBN. Contact her at email@example.com.
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