Recent legislation passed by the Pennsylvania General Assembly offers a new short short-term borrowing option to local governments and school districts dealing with budget uncertainties related to the ongoing COVID-19 pandemic. House Bill 2536 was signed into law by Gov. Tom Wolf Nov. 23, 2020, as Act 114 of 2020. Among other things, Act 114 created a special, limited emergency tax and revenue anticipation note program for the 2021 calendar year. The new program will provide greater financial flexibility to local governments and school districts as they await the results of tax collections in the coming months.

In general, the ability of a county, municipality or school district (referred to herein as a "local government unit") to issue tax and revenue anticipation notes, or TRANs as they are commonly called, is governed by the Local Government Unit Debt Act, Act 177 of 1996 (S.B. 689), 53 Pa.C.S. Section 8001 et seq. (the Debt Act). Under the Debt Act, TRANs are defined as "notes issued in anticipation of taxes, in anticipation of revenues or in anticipation of both as designated in the notes." The Debt Act prescribes a number of limitations on the ability of a local government unit to issue a TRAN, including the following requirements which are of particular interest:

• The total amount of TRANs issued in a fiscal year cannot exceed 85% of the amount of taxes levied and revenues budgeted to be received by the local government unit for that fiscal year.

• The local government unit must certify to the commonwealth as to the estimated amount of taxes and revenues anticipated to be received in the current fiscal year. This estimate must be based on collection experience and current economic conditions of the local government unit, i.e., it must take into account the current economic climate, including the impact of the COVID-19 pandemic.

• The final maturity date of a TRAN may not extend beyond the last day of the fiscal year in which the TRAN is issued. In the event the TRAN is not repaid at maturity, the unpaid balance is treated as non-electoral debt under the Debt Act, and the local government unit must include the repayment of it in its budget for the ensuing fiscal year.

In the current economic climate, where there is ongoing uncertainty as to tax collection and revenue results, the issuance of a TRAN prior to the passage of Act 114 was a bit of a gamble. A local government unit considering issuing a TRAN had to be confident that it would collect enough taxes and other revenues before the end of the fiscal year (for school districts, June 30, and for counties and other municipalities, Dec. 31, 2021) to repay the TRAN. For certain local government units affected by the pandemic, the uncertainty might be so great that they would be unable to deliver the required certification to the commonwealth under the Debt Act.