Moody's Investors Service has revised the Commonwealth of Pennsylvania's outlook to stable from negative. We have also affirmed the commonwealth's Aa3 general obligation rating, and the A1 and A2 ratings on various lease financings and appropriation bonds.
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.
The rating also recognizes the commonwealth's chronic late budgets, which reflect a political gridlock that has made it difficult for the commonwealth to chart a sustainable long-term fiscal path. The commonwealth is likely to struggle to balance its budget annually as its pension contributions ramp up and expenditures grow more quickly than revenues.
Rating Outlook
The revision of the commonwealth's outlook to stable recognizes that Pennsylvania's problems - while sure to persist - are unlikely to lead to sharp liquidity deterioration, major budget imbalances, or other pressures consistent with lower ratings for US states. Pennsylvania continues to make steady progress toward better funding of its pension liabilities, which remain large but not abnormally large by state standards. The commonwealth is likely to continue struggling to balance its budgets in future years, but the magnitude of its budget gaps will be solvable. And while legislative gridlock, depletion of its rainy day balances, and a long history of pension underfunding reflect poorly on the commonwealth's governance practices, none of these is inconsistent with the current rating category, which is already below the median for a US state.
