Moody's Investors Service cited Pennsylvania's pension crisis as a key reason for downgrading the commonwealth's general obligation rating to Aa3 from Aa2.
While the state benefits from a strong economy and low unemployment, Moody’s stated that unfunded pension liabilities, projected to grow to $65 billion from the current $41 billion, will continue to be a major cost driver on the commonwealth.
The move comes two years after Moody's downgraded Pennsylvania’s general obligation rating to Aa2 from Aa1. The bond rating service cited the looming pension crisis as the reason behind that move as well.
In the recent rating, Moody’s noted that the state’s pension obligations present a key challenge, stating that “high combined debt position driven by moderate bonded debt levels but growing unfunded pension liabilities as Pennsylvania continues to underfund pension contributions.”
Positive indicators for the state include having a “diverse, broad, and relatively stable economy, with wealth levels slightly above the national average, buttressed by large health and higher education sectors; recent improvements in governance, resulting in consecutive timely budgets; and strong executive authority to cut or freeze appropriations mid-year.”
Facing a tough re-election battle, Gov. Tom Corbett recently challenged the General Assembly to tackle the pension crisis, which he said “has put severe strain on Pennsylvania’s finances."
In a news release following the Moody's rating change, Corbett said today that “pension costs are consuming more than 60 cents of every new dollar of state general fund revenues. Doing nothing is not an option and doing nothing fails our families.”
In testimony before the House State Government Committee last year, Budget Secretary Charles B. Zogby discussed the negative impact Pennsylvania’s pension crisis could have on the commonwealth’s credit rating.
The governor noted that 163 school districts requested exemptions to increase property taxes above the index, with 99.4 percent citing pension costs as the reason for the request.
“I urge the citizens of Pennsylvania to join in this fight and demand that the legislature address the most important fiscal challenge facing the commonwealth: pension reform,” Corbett said. “Pennsylvania families and taxpayers deserve nothing less.”