R.I. secures $150M line of credit to pay bills as coronavirus pandemic hits

PROVIDENCE — Rhode Island has secured an initial $150-million line of credit from the Bank of America to help keep state government operating — and its bills paid — through the next few months as the pandemic inevitably cuts into state tax revenue.

At the closing on Tuesday, the state drew an initial $25 million which was all that was deemed necessary at that point, according to Evan England, a spokesman for the state’ s General Treasurer Seth Magaziner.

According to England, the line of credit extends through July 30, 2020, and was provided to the state of Rhode Island with a variable rate that will rise or potentially fall with the published rate that banks charge other banks to lend each other money.

As of Wednesday, England said, the interest rate was 1.25%.

"By taking quick action and securing this financing on very favorable terms, we are ensuring that state government has the resources necessary to help Rhode Islanders who have been laid off, support first responders and health-care professionals on the front lines of the COVID-19 response, and keep state services operational at a time when they are needed most,’’ Magaziner said Wednesday.

While borrowing to pay for the day-to-day operation of state government is not standard operating procedure, it was authorized by top lawmakers at a first-ever meeting of the state’s Disaster Emergency Funding Board last week.

The four-member board authorized up to $300 million in borrowing for up to two years, at Gov. Gina Raimondo’s request, amid warnings from Raimondo’s top budget adviser that the state would soon run out of money to pay all of its bills.

“It is absolutely necessary that we take this step at this time. In fact, I don’t think we have any other choice,’’ Raimondo told the board made up of the House speaker, the Senate president and the chairmen of the House and Senate finance committees.

“We have to keep the lights on to keep Rhode Islanders alive,” she said, citing the critical roles of hundreds of state workers, at work through the crisis, including those in the State Police, Department of Children, Youth & Families and the Department of Health.

“This situation requires immediate action,” echoed Magaziner.

“We typically try to keep the general fund from falling below a balance of $40 million at any time. We are anticipating falling below that level as early as Monday, and the balance could fall below [zero] soon after that,’’ he said on March 26.

“We are looking to add an additional lender,’’ England said Wednesday morning.

”We needed one quickly,’’ England said. But with authority to borrow up to $300 million, “we are continuing to look at (other) offers we received.”

The resolution authorizing the borrowing caps the annual rate at 3%.

The primary cause of the cash shortfall in the current year is the delay in the federal tax filing deadline to July 15, 2020, and its corresponding effect on RI filing deadlines, accordiing to Jonathan Womer, director of the state’s Office of Management and Budget.

“This change will push collection of over $300 million of FY 2020 revenue ... [into] FY 2021,” he wrote.

Among his other warnings to lawmakers last week: “Withholding payments and sales tax receipts may decline in the short-term if emergency measures to promote social distancing continue ... Even assuming income tax payments come in as expected in July 2020, cash flow may remain challenged intermittently from August through December depending on the lasting effects of the pandemic.” kgregg@ providence-journal.com

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