Moody's Investors Service affirmed Pennsylvania's Aa3 general obligation rating Monday and kept the commonwealth's outlook at negative following its passage of a 2016 budget nine months into the fiscal year.

Moody's analyst Dan Seymour said in his report that the Aa3 GO rating "incorporates the commonwealth's large and diverse tax base, moderate debt burden, and recent and planned progress toward improving funding of its elevated pension liabilities. He added that the state is capable of solving its financial challenges, "the lengthy political stalemate that delayed the passage of a full-year budget until nine months into fiscal 2016 suggests practical difficulties regaining its footing in a structurally balanced fashion in the near future."

Seymour noted that the negative outlook reflects a likelihood that Pennsylvania's credit challenges are likely to worsen in the near future unless there is political compromise between Democratic governor Tom Wolf and the Republican-controlled legislature. Moody's dropped Pennsylvania's outlook to negative last October four months into its budget impasse. The state finally adopted a budget in mid-March that Wolf waved into law absent a signature.

"If the commonwealth is able to balance the budget, either through revenue increases or expenditure decreases or a blend of each, its credit could stabilize at the current level," said Seymour. "If not, further budget deterioration would likely apply downward pressure on the rating."

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