HARRISBURG — Credit agency Moody’s Investors Service cited the new state budget’s reliance on one-time revenue sources as it downgraded Pennsylvania’s debt rating on Monday.
Gov. Tom Corbett said the downgrade reflects Pennsylvania’s looming and unresolved pension bills, and Democrats countered that the ratings hit had more to do with the governor‘s unwillingness to tax the energy industry or enact other new revenue.
In its announcement Monday, Moody’s said its downgrade of the state’s $11.1 billion in general obligation bonds to Aa3 from Aa2 was because of Pennsylvania’s “growing structural imbalance, exacerbated by the fiscal 2015 enacted budget that depends on non-recurring resources,” as well as its large and growing pension liabilities.
The agency said the state budget for the fiscal year that began July 1 includes $2 billion of non-recurring revenue.
The change follows Fitch Ratings’ downgrading the state’s debt in July 2013 and Standard & Poor’s Ratings Services’ saying in April that it would monitor budget deliberations and “could lower the state rating in the next few months in the absence of a structurally balanced budget and meaningful pension reform.”
Mr. Corbett, who has been attempting to rally support for changes to the statewide pension systems, noted that Moody’s cited pension obligations as a reason for the downgrade. Mr. Corbett has appeared across the state in an effort to persuade the General Assembly to pass a House Republican plan that would reduce the traditional pension while adding a 401(k)-style benefit for future state and school workers.
“It’s clear that this pension crisis has put severe strain on Pennsylvania’s finances,” Mr. Corbett said in a statement. “Doing nothing is not an option, and doing nothing fails our families.”
Democrats retorted that the downgrade should be blamed on Mr. Corbett’s resistance to adopting new revenue. Mr. Corbett ran in 2010 on a pledge against raising taxes, although he advocated and signed a transportation funding law that lifts a cap on a tax paid by fuel distributors.
“It’s directly related to the unwillingness of this administration to add revenue to help support the budgets that are important for Pennsylvania,” said Senate Minority Leader Jay Costa, D-Forest Hills. He said the state should have placed a severance tax on Marcellus Shale drilling.
“Now it’s going to cost Pennsylvanians more money when we borrow, because he didn’t want to tax Marcellus industry,” Mr. Costa said. “He prefers to have Pennsylvanians bear the cost of the downgrade.”
Senate Republicans said the Moody’s announcement “details a number of Pennsylvania’s strengths — such as our record of consecutive timely budgets and the state’s ‘diverse, broad and relatively stable economy’ — along with several challenges.”
“We will continue to work with Governor Corbett and the House to address one of the key challenges, the need for serious pension reform, in the coming months,” spokesman Erik Arneson said in an email.
Mr. Corbett’s re-election campaign and that of his Democratic challenger, Tom Wolf, also released dueling statements over the downgrade. Mr. Wolf criticized the “gimmick-filled budget,” and Mr. Corbett accused his opponent of denying that a “pension crisis” exists.
The pension bill Mr. Corbett is promoting could reduce employer contributions $11 billion over 30 years, with $9 billion from the plan changes and $2 billion from the elimination of a health insurance premium assistance program for members of the Public School Employees’ Retirement System, according to an actuarial note from the Public Employee Retirement Commission.
It would leave mostly unchanged the reduction in unfunded liability of PSERS expected under current law, while returning the State Employees’ Retirement System to full funding by 2042, when current law would have the system 97.3 percent funded, according to the actuarial note.
Karen Langley: firstname.lastname@example.org, 717-787-2141 or on Twitter @karen_langley.