The Pennsylvania Senate is scheduled to reconvene Wednesday with lawmakers and Gov. Tom Wolf still at odds over how to fund the $30 billion fiscal 2016 budget.

House members will gather for the fall session on Monday.

Wolf, a Democrat, vetoed the spending plan in late June and the Republican-controlled legislature could not muster enough votes to override.

The impasse has put a hold on funding to public schools and social service agencies. Some are drawing on lines of credit.

Moody's Investors Service earlier this month downgraded most school district ratings enhanced by the commonwealth's pre- and post-default intercept programs and placed them on review for further downgrades. Standard & Poor's placed intercept-based school district and community college ratings on credit watch with negative implications.

Moody's rates Pennsylvania's general obligation bonds Aa3. Fitch Ratings and Standard & Poor's rate them AA-minus. All three downgraded the commonwealth last year, citing chronic structural imbalance and an estimated $53 billion unfunded pension liability.

Pennsylvania's failure over the past decade to fully fund required payments to its two major pension funds have compromised its credit quality, according to Tom Kozlik, a managing director at PNC Capital Markets.

"Pennsylvania's structural imbalance cannot be blamed on cyclical factors," he said.

Wolf in late June also vetoed a Republican-backed measure to place new state hires into a 401(k)-style defined-contribution retirement plan instead of the traditional defined-benefit pension plan. The governor's budget calls for $3 billion in pension obligation bonds. Pension overhaul and a GOP-supported privatization of the state's liquor store system could still be at play in budget compromise talks.

Nine of the commonwealth's last 13 budgets have been late. In 2003, Gov. Ed Rendell and lawmakers compromised after some school districts said during the holiday season that they might not open in January.

Kozlik said short-term consequences of budget delay are minimal. "Credit negative outcomes increase, however, if the stalemate drags on past the December holidays."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.