Pennsylvania's $1.3 billion revenue package that balanced its fiscal 2017 budget is a strong step toward long-term budget balance, said Moody's Investors Service.
Gov. Tom Wolf one week earlier signed the legislation that backstopped the $31.5 billion spending plan. The new package relies heavily on tobacco and gambling taxes and includes a $200 million loan from a state medical malpractice insurance fund, which the commonwealth must repay starting next year.
"In this sense, the budget is still modestly structurally imbalanced," Moody's said July 20. "Nonetheless, the budget is a positive step overall."
Moody's rates Pennsylvania's general obligation bonds Aa3 with a negative outlook. On July 19, S&P Global ratings removed its AA-minus rating from credit watch with negative implications, though it retains a negative outlook. Fitch Ratings rates Pennsylvania AA-minus, with a stable outlook.
Rating agencies have downgraded Pennsylvania five times in the past three years.
"The commonwealth's rating is below the media for states, and its negative outlook incorporates risks such as backsliding on pension funding and failure to solve fiscal problems through political compromise," said Moody's.
The fiscal 2016 budget was nine months late before Wolf, a Democrat at odds with a Republican-controlled legislature since taking office in 2015, allowed it to become law without his signature.
