PA braces for credit downgrade after budget & pensions soufflé
While the state budget still awaits the governor’s signature, state lawmakers have largely wrapped up their work without addressing the major problems that stand to threaten the commonwealth’s borrowing capability.
This spring, the three big credit rating agencies gave Pennsylvania fair warning to reduce its $50-billion-and-growing pension debt, rein in long-term pension costs, and stop using one-time moves to balance your budget.
But all those problems remain, even after the frenzy of legislative activity that marks every June at the state Capitol.
The budget approved by the House and Senate does make the full scheduled payments toward the pension debt, but those payments are already lower than actuaries suggest. Lawmakers failed to find political support for efforts to scale back public pension benefits for future state and school employees. Add to all that the bevy of one-time funding sources used in the budget to cover a $1.4 billion deficit. The rating agencies’ warnings went unheeded.
“There’s no question in my mind that between now and probably September -- or the next time they do their ratings -- that we’re likely looking at a downgrade,” said Sen. Jay Costa (D-Allegheny), the Senate’s minority leader.
A credit downgrade makes it more expensive to borrow money, which the commonwealth does at least once a year.
“To the extent that we don’t make progress on pension reform, to the extent that steps aren’t taken to address the structural deficit, I think that puts us at greater risk when the agencies look at our next bond issue,” said Budget Secretary Charles Zogby.
Pennsylvania has received two credit downgrades in the past two years. Both times, the drops came in mid-July.