Alan Schankel of Janney Capital Markets expects "robust" retail demand to compliment strong institutional demand on Illinois GOs
"The state's reserve margin is very narrow, leaving little room for miscalculation," said municipal analyst Alan Schankel of Janney Capital Markets.

PHILADELPHIA -- The speed of Pennsylvania's response to its $1.2 billion budget imbalance will make a difference when the commonwealth sells general obligation bonds next week.

"Resolution of the spending side would support next week's scheduled sale," said municipal analyst Alan Schankel, a managing director at Janney Capital Markets. "Reports from Harrisburg are encouraging, with the word bipartisan popping up in media reports, so resolution before next week's sale is possible if not probable,"

Pennsylvania's GO sale, also for $1.2 billion, is scheduled for July 19. Public Financial Management Inc. is the financial advisor on the competitive sale.

Lawmakers meeting Tuesday behind closed doors in Harrisburg to work out a revenue package finalized nothing. Talking points centered on an increase in tobacco taxes and an expansion of legalized gambling.

House Majority Leader Dave Reed, R-White Township, struck an optimistic tone.

"There have been a lot of ups and downs over the last year and a half, so I think all parties are working to the best of their ability to get everything signed, sealed and delivered, and once that's done, everyone will feel good about it," he told reporters.

Gov. Tom Wolf a day earlier allowed the $31.5 billion spending plan for fiscal 2017 to become law without his signature, 10 days after lawmakers sent it to him. Wolf, a Democrat, did likewise in March to settle a nine-month impasse with the Republican-controlled legislature over the previous year's budget.

S&P Global Ratings on Monday placed its AA-minus rating for Pennsylvania on negative credit watch, citing the budget imbalance. It gave the commonwealth 90 days to fix the problem. Moody's Investors Service affirmed its Aa3 rating and negative outlook while Fitch Ratings maintained the stable outlook on its AA-minus rating.

S&P questioned whether the incomplete budget is legal, given that the state's constitution requires the signing of a balanced spending plan. A group of conservative lawmakers said it would consider a court challenge.

"Arguments as to whether half a budget meets legal muster will disappear if legislators find additional income sources to align revenue with spending," said Schankel. "The state's reserve margin is very narrow, leaving little room for miscalculation."

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