It turns out we’re not the only ones waiting for a responsible Pennsylvania state budget that actually raises the revenue the state needs to pay its debts — and also to adequately fund education, infrastructure and human services.
The rating agency, Standard and Poor’s (S&P), is also waiting for a fiscally responsible budget.
Rating agencies are responsible for evaluating whether entities that want to borrow (e.g., corporations or government entities) are “credit worthy” — will they be able to pay back their debt? When examining states, rating agencies look at whether projected state tax revenues are in line with projected state expenditures. If they are, states can be expected to make good on their payments and buying state debt is a good risk for investors. If the state’s fiscal house is in order, states get a good bond rating.
In recent years, however, Pennsylvania’s bond rating has been downgraded repeatedly because the state has had a series of fiscally irresponsible budgets. State lawmakers and Gov. Corbett used one-time revenue sources and other accounting gimmicks (e.g., shifting payments into the next fiscal year, raiding every possible trust fund) to limp through the last several state fiscal years. Such fiscal irresponsibility leaves Pennsylvania today with a growing gap between projected revenues and expenditures — what public finance economists call a “structural deficit.” It also makes rating agencies nervous about the state’s ability to pay its bills.
How does S&P feel about the state budget sent to Gov. Wolf in December, which he blue-lined (i.e., vetoed parts of) yesterday in part because it was fiscally irresponsible? Nervous.
Here are S&P’s own words.
“Despite six months of deliberations, Pennsylvania’s budget deliberations continue, leaving it uncertain whether legislators will act to close the state’s budget gap or address its long-term pension liabilities.”
“The $30.3 billion budget passed by both the house and senate is, in our view, structurally unbalanced…As proposed, the budget had a $500 million budget gap for fiscal 2016 and left a $2 billion budget gap for fiscal 2017.”
“As the state’s longest running budget impasse persists, the question of lawmakers’ political willingness to address fiscal challenges remains.”
“While we have not changed our rating based on the state’s political gridlock, continued structural imbalance or lack of progress in funding its pensions could result in a rating action.”
Translation: if the legislature doesn’t finish a budget that brings in enough revenue to cover expenses, Pennsylvania’s debt will be downgraded further.
Standard & Poor’s was generous to give the state an “incomplete” on its unfinished budget. At the start of the New Year, legislative leaders need to get back on track to finally pass the bipartisan budget framework that has already passed the Senate overwhelmingly (43-7) and gained a majority of members’ support on a preliminary vote in the House — and to couple that with a revenue bill. It’s past time to reassure bond rating agencies that the faith and credit of the commonwealth of Pennsylvania is good — and to reassure Pennsylvanians that lawmakers still believe in educational opportunity.