State's loan fund may sink into red as lawmakers raid it to balance budget

The Capitol building in Harrisburg
The Capitol building in Harrisburg
| Thursday, Aug. 7, 2014, 11:00 p.m.

When Pete Tsudis, chief executive officer of TruFood Mfg, planned an expansion into the nutrition bar industry last year, it meant spending millions of dollars on new equipment at the company's O'Hara plant.

To shore up the investment, Tsudis secured a $3.25 million, seven-year low-interest loan from the state's Machinery and Equipment Loan Fund. Since then, TruFood has doubled in size to more than 300 workers.

“It was a beneficial program for us,” Tsudis said. “The project probably wouldn't have happened if the state didn't step in and help us.”

This year state officials tapped into the fund themselves. Facing a deficit of more than $1 billion, lawmakers balanced the $29.4 billion state budget, in part, with $85 million from the loan fund, among other transfers.

The Department of Community and Economic Development is steering eligible loan applicants toward other programs. Current applications and past project commitments will use all, and might exceed, program capacity this year, said agency spokesman Steve Kratz.

“We certainly recognize the difficult financial situation the commonwealth was under with the budget deficit, but it is making us take a look at where we're at in the program before moving forward,” he said.

Minus the transfer and $33 million in prior loan commitments and voucher payments, the fund has $10.4 million. An estimated $15 million in loan payments will come in throughout the year. The agency is reviewing 32 applications with requests totaling $52.2 million, Kratz said.

In late July, officials added a note to the application that says they are reviewing the Machinery and Equipment Loan Fund. Eligible applicants, seeking state aid for machinery and industrial projects, are asked to call the office to discuss alternatives.

“We are looking at other funding sources to kind of backfill the challenges we are going to face in that program,” Kratz said.

Democrats criticized Gov. Tom Corbett and the Republican legislative majority for approving a budget that includes one-time transfers, but Corbett's office contends the moves were a necessary sacrifice in the face of lagging revenue.

“If there was surplus in those funds, we need to find better ways to use those funds to enhance job growth rather than simply taking the funds out of there to fund state government,” said House Minority Appropriations Chairman Joe Markosek, D-Monroeville.

Last year the fund doled out 33 loans totaling $30.9 million. The awards led to 1,149 new jobs and $42.8 million in private investment, according to agency records.

Senate Minority Leader Jay Costa, D-Forest Hills, said it was frustrating to see the transfers approved when the state could pursue new revenue sources, such as a tax on natural gas drillers, to eliminate the deficit.

“Instead of imposing a severance tax, they choose to decimate and raid very effective, very successful loan programs that help businesses,” Costa said.

The budget transferred $95 million from an agnecy loan fund dubbed the Small Business First program, leaving $12 million. Kratz said that program will continue to operate.

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi, R-Delaware County, said lawmakers included the transfers to balance the budget at the recommendation of the Corbett administration. Lawmakers were told the funds would continue to provide the help that they always had, he said.

When Corbett signed the budget on July 10, he reduced the transfers by a combined $20 million using a line item veto. Corbett spokesman Jay Pagni said the transfers, like other decisions, were made in the context of lower-than-expected revenue and a need to balance the budget.

“Difficult budget times required shared sacrifice,” he said.

Melissa Daniels is a staff writer for Trib Total Media. She can be reached at 412-380-8511 or

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