Pennsylvania's ability to match recurring revenues with recurring expenditures remains a pivotal credit consideration as the commonwealth's budget stalemate drags on, according to Fitch Ratings.

The commonwealth is approaching the fourth month of fiscal 2018 without a revenue plan to match the $32 billion budget Gov. Tom Wolf allowed to become law without his signature. This marks the third consecutive late budget for Democrat Wolf and the Republican-controlled legislature since he took office in January 2015.

“A final fiscal 2018 budget heavily reliant on one-time measures would be inconsistent with Fitch's expectations of progress in addressing the structural budget gap,” said Fitch. “The commonwealth must also address a sizable revenue shortfall from fiscal 2017, which Fitch assumes will be addressed with one-time sources at this late stage.

Last November, the legislature's Independent Fiscal Office projected a long-term structural imbalance ranging between $1.7 billion and $3 billion annually through fiscal 2022. Fitch expects the next estimate, due later this fall, could continue to reflect a sizable imbalance depending on the final budget plan.

Fitch rates Pennsylvania’s general obligation bonds AA-minus. Last week S&P Global Ratings downgraded the GOs to A-plus from AA-minus. Moody’s Investors Service rates the bonds Aa3.

Wolf on Sept. 15 delayed roughly $1.2 billion in Medicaid provider payments and $600 million in pension cost reimbursements to local school districts.

“Absent a completed budget or authorization for additional internal or external borrowing, Fitch anticipates the state will continue to take similar measures to maintain positive cash flow.” The rating agency said.

While the commonwealth’s 2,561 cities and towns are edge about state aid, a report Monday by the Pennsylvania Economy League said fiscal decay has accelerated in all types and sizes of municipalities over many years.

“The negative trend jeopardizes cities the most but also endangers boroughs, first class townships and even second class townships, whose explosion in wealth and population since the 1970s does not make them immune to the consequences of Pennsylvania’s broken local government system,” said the report.

Most vulnerable, according to the study, are the municipalities in the state’s workout program for distressed communities, known commonly as Act 47.

Of the 14 cities and boroughs that have been in the state’s Act 47 distressed municipalities program for at least five years, only one had a 2014 tax base that was at least on par with the average for those that had never been in Act 47, said the report. This happened, said the study, despite extensive state assistance – in some cases for decades.

Most Act 47 municipalities, said PEL, increased their tax burden during the report’s review period, generally at a rate higher than non-Act 47 municipal averages

“The alarming trend should come as no surprise,” said PEL, which 10 years ago, warned that Pennsylvania municipalities were increasingly falling into fiscal distress. The organization blamed out-of-date and often expensive mandates, insufficient incentives for municipal collaboration and revenue streams for localities “that are largely inelastic, capped and out of sync with budget needs.”

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Paul Burton

Paul Burton

Paul Burton is the Northeast Regional Editor for The Bond Buyer and the author of the book "Tales from the Newsrooms." He is a sought-after public speaker and has appeared on radio and TV shows, including former CBS News White House correspondent Sharyl Attkisson’s public-affairs program, “Full Measure.”