Pennsylvania has capacity to face fiscal challenges, says Fitch

Pennsylvania, still without a finalized budget, will maintain its AA-minus issuer default rating and stable outlook from Fitch Ratings, based on the rating agency’s expectation that the commonwealth will adequately respond to fiscal pressures.

The state has enacted a spending plan for fiscal 2018, though it still needs a revenue package to provide the necessary funding. Pennsylvania also needs to address a $1.5 billion revenue shortfall.

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Fitch will update the state’s general obligation and related ratings after it evaluates the revenue package when it passes.

Pennsylvania's late and imbalanced budgets over the past decade have drawn the glare of bond rating agencies. S&P Global Ratings on July 6 placed its AA-minus GO rating on the commonwealth on credit watch with negative implications. Moody’s Investors Service rates the commonwealth's GOs Aa3.

The spending plan Gov. Tom Wolf let become law without his signature has a reported $700 million to $800 million gap with revenues available under current law. Fitch anticipates further budget balancing will rely on revenue measures.

General fund appropriations of roughly $32 billion include substantial savings in recurring expenditures, $2 billion according to the governor’s office and increases in key policy areas such as K-12 education.

Legislative leadership and the governor have indicated their intent to rectify the approximate $2.2 billion budget gap that is expected to accumulate through fiscal 2017 and 2018 in one set of measures.

While Wolf is a Democrat, Republicans dominate the legislature.

Fitch says it will assess whether proposed measures include reasonable estimates of anticipated revenues, and whether those revenues are sustainable over the long term to address the budget gap.

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