The partial budget Gov. Tom Wolf signed for Pennsylvania that includes emergency education subsidies is a credit positive for the commonwealth's school districts, Moody's Investors Service said Thursday.
"The budgeted state aid for schools reduces the need for additional cash borrowing, [and] generates interceptable state funds to reimburse bondholders in the event of missed debt service payments by school districts," Moody's said in a commentary.
On Tuesday, with a budget impasse about to begin its seventh month, Wolf signed a $23.3 billion plan for fiscal 2016 while exercising line-item vetoes on a $30.3 billion budget lawmakers sent him. Wolf, a first-year Democratic governor, and the Republican-dominated legislature have been at odds all year.
Lawmakers expect to return to Harrisburg on Monday.
School districts, dependent on state reimbursements, have borrowed roughly $1 billion from banks during the stalemate to continue operating. Many were running out of funds and Philadelphia, the state's largest, threatened to close at the end of January.
Moody's on Dec. 22 downgraded Pennsylvania school district enhancements to a cap of Baa1, and lowered Philadelphia's district five notches to a program-enhanced of Ba2, one notch above its underlying Ba3.
"We do not intend to undo or revise this action as a result of the stopgap budget," said Moody's. "The habitual nature of Pennsylvania's budget stalemates suggests that this situation that lasted from July to December could recur."
Pennsylvania has been late with 10 of its last 13 budgets. This impasse broke the previous futility mark of 2003.
Moody's said the partial budget is not materially positive for Pennsylvania.
"The budget impasse has raised doubts about the commonwealth's practical capacity to resolve its structural budget imbalance and address its long-term pension liabilities, and this stopgap solution addresses none of those doubts," said Moody's, mirroring comments by Standard & Poor's two days earlier.
In addition to a projected $2 billion budget hole for fiscal 2017, Pennsylvania has an unfunded pension liability estimated at up to $57 billion. A variety of pension overhaul bills, mostly used as budgetary companion bills, have stalled in the legislature.
Moody's assigned a negative outlook to its Aa3 rating of Pennsylvania's general obligation bonds in October. Fitch Ratings and Standard & Poor's assign AA-minus ratings, with stable outlooks.
"The fact that the commonwealth can only muster and emergency stopgap budget six months into the impasse indicates that political gridlock will make it difficult for Pennsylvania to find solutions to fiscal imbalance," Moody's added.
