Pennsylvania is selling $750 million of general obligation bonds Tuesday amid increasing debate over how to handle its approximately $45 billion unfunded pension liability.
The commonwealth will use proceeds from the competitive sale to fund capital facilities projects.
The bonds will mature from 2014 to 2023. Public Financial Management Inc. is the financial advisor. Cozen O'Connor LP is bond counsel for the sale, and state Attorney General Kathleen Kane also provided a legal opinion.
Gov. Tom Corbett's proposal to overhaul the system for two state-run pension funds - the State Employees Retirement System and the Public School Employees' Retirement System — stalled in the state legislature in June. Lawmakers are expected to reconsider it during the fall session.
Fitch Ratings in July lowered Pennsylvania to AA, with a negative outlook, from AA-plus. Fitch, in a report it issued last week, cited "a failure to boost the adequacy of pension funding." Standard & Poor's also rates Pennsylvania AA.
Moody's Investors Service a year earlier dropped the Keystone State to Aa2 from Aa1, also citing pension liabilities among other concerns.
"Rapidly growing pension contributions will absorb much of the commonwealth's financial flexibility over the next four years challenging its ability to return to structural balance or make meaningful contributions to the depleted budget stabilization fund," Moody's said in its presale report.
In September, Rep. Glen Grell, R-Hampden Township, proposed a three-point plan to overhaul the pension systems that would include issuing billions of dollars in pension obligation bonds. He warned, as has state budget Secretary Charles Zogby, that Pennsylvania could face further downgrades if it does nothing.
Overall, Pennsylvania has about $10.8 billion in debt outstanding.
Last week, the House and Senate unanimously passed legislation to reduce the debt ceiling of the Redevelopment Assistance Capital Program by $600 million, to $3.45 billion. The program borrows to fund economic development projects that the governor selects, and provides grants to local communities for the acquisition and construction of regional economic and cultural improvement projects.
The vote was 49-0 in the Senate and 194-0 in the House. Corbett is expected to sign the measure, which toughens job-creation standards among other features.
"It's landmark, This is the first time in history that we have ever reduced the debt ceiling with respect to the Redevelopment Assistance Capital Program," said Rep. Mike Turzi, R-Bradford Woods.
The program provides grants to local communities for the acquisition and construction of regional economic, cultural, civic and historical improvement projects. The funding may be used for the design and construction of facilities that are economic development projects which generate substantial increases in employment, tax revenues or other measures of economic activity.
