The $2.5 billion line of credit Pennsylvania's Treasury extended to the state for its general fund is a credit negative, according to Moody's Investors Service.
"It illustrates that Pennsylvania's general fund position remains stressed amid growing expenditures [particularly Medicaid and pension contributions] and slower-growing revenues," Moody's said in a commentary Monday.
The commonwealth's treasurer, Timothy Reese, extended the credit line Aug. 16, with the state making an immediate $400 million draw to prevent the general fund cash balance from falling into the negative for August.
This is also the largest such borrowing in Pennsylvania's history.
"While the state's access to the treasury's ample liquidity ensures the general fund will not run out of cash, reliance on such borrowings points to the challenges that Pennsylvania faces in achieving a sounder fiscal position," said Moody's.
Gov. Tom Wolf signed a $31.5 billion fiscal 2017 budget in mid-July.
Moody's rates the commonwealth's general obligation bonds Aa3 with a stable outlook. S&P Global Ratings and Fitch Ratings assign AA-minus ratings, with outlooks negative and stable, respectively.
The commonwealth sold $1.2 billion of GO bonds competitively on Aug. 9. Bank of America Merrill Lynch won the bidding with a true interest cost of 2.75%.