Deficit-ridden Pa. warned of another hit to credit
HARRISBURG » Pennsylvania was put on notice Thursday that it faces another credit downgrade and higher borrowing costs if it does not improve its deficit-ridden finances.
The sharply worded warning by Standard and Poor’s that suggested state government is guilty of financial mismanagement came amid a six-day-old stalemate as lawmakers tussle over how to pay for a $32 billion spending package. They face a midnight Monday deadline for Democratic Gov. Tom Wolf to make a decision on the main appropriations bill on his desk.
Pennsylvania has struggled with an entrenched post-recession deficit, and credit downgrades in 2012 through 2014 have left it with among the nation’s lowest credit ratings.
Putting Pennsylvania on a negative “creditwatch” reflects Pennsylvania’s eroding financial position, Standard and Poor’s said, as well as its view that there is a “significant likelihood” that Pennsylvania state government will not pass a structurally balanced budget for the fiscal year that began Saturday.
Pennsylvania’s chronic and widening deficits, particularly during a period of economic growth, “demonstrate (a) pattern of financial mismanagement,” Standard and Poor’s said in its statement.
A budget that relies on optimistic assumptions or one-time cash sources — such as borrowing — likely would draw a downgrade, the New York-based credit rating agency said.
In a statement, Wolf called Standard and Poor’s move “an urgent call to action” for the state to come up with a long-term solution to its budget deficits. A credit downgrade would increase taxpayer costs and hurt the state’s economy, Wolf said.
Wolf’s office said it calculated in 2015 that a downgrade would add $10 million in interest costs to every $1 billion that is borrowed, including when the state goes to refinance debt.
Wolf’s budget proposal released in February included a $1 billion tax package, including a tax on Marcellus Shale natural gas production in the nation’s No. 2 natural gas state. He also wanted to assess a fee on municipalities that get free state police coverage in an effort to stem the amount of highway construction money being diverted to underwrite the state police budget.