Pennsylvania plans $1.2 billion bond sale amid budget debate

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Pennsylvania expects to come to market Wednesday with a $1.2 billion competitive sale of general obligation bonds.

Proceeds will fund capital facilities projects, including the construction and fix-up of public buildings and transportation assistance projects. They will also backstop Growing Greener Projects, a program that includes a variety of sustainable initiatives, and the Pennsylvania Infrastructure Investment Authority, or Pennvest.

PFM Financial Advisors and Sustainable Capital Advisors are co-financial advisors. Maturities will run from 2020 to 2039.

Moody’s Investors Service rates Pennsylvania GOs Aa3 with a stable outlook. S&P Global Ratings and Fitch Ratings assign A-plus and AA-minus ratings while their outlooks are stable and negative, respectively.

“Pennsylvania’s below-average state rating reflects its relatively high leverage and fixed-cost burden, as well as lower-than-average job and revenue growth,” said Moody’s. “Although the rating is below that of most states, the above challenges are balanced by the state’s very large economic base, solid income statistics and sound financial position.”

Fitch based its negative outlook on reduced financial resilience.

“Non-recurring measures and a lack of reserves have been consistent features of commonwealth budgets, including in the enacted fiscal 2018 plan, putting Pennsylvania more at risk in event of a moderate economic downturn,” Fitch said in a commentary.

Despite expectedly thin cash balances, said S&P, modest ongoing structural gaps suggest Pennsylvania's financial position “will not likely deteriorate significantly further” over two years.

Ballard Spahr LLP and Turner Law PC are co-bond counsel while Greenberg Traurig LLP and Andre C. Dasent PC are special co-disclosure counsel.

As the commonwealth is debating Gov. Tom Wolf’s proposed $33 billion fiscal 2019 budget, Monday’s U.S. Supreme Court clearance of legalized sports betting could expedite that activity in Pennsylvania.

Wolf last fall signed a bill approving sports betting for the state’s casinos as a revenue-raising and budget-balancing move.

Monday’s ruling supported New Jersey's challenge to the constitutionality of the 1992 federal Professional and Amateur Sports Protection Act. The law made professional and collegiate athletics illegal in all states except four that had legal sports wagering at the time: Nevada, Delaware, Montana, and Oregon.

“We expect the Gaming Control Board to move forward with the implementation of sports betting in Pennsylvania,” Wolf said in a statement on Monday. This future revenue would affect next year’s budget at the earliest, the governor added.

Democrat Wolf’s election-year budget would raise spending by roughly $1 billion, or 3.1%, over the approved fiscal 2018 plan. It contains no increases in sales or income taxes, although he has repeated his call for a severance tax on natural gas drilling, which the Republican-dominated legislature has opposed in the past.

The commonwealth has had chronically late budgets, stop-gap revenues, political gridlock and rating agency pushback. Wolf and the legislature have yet to complete a budget on time since he took office in 2015.

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Primary bond market Sell side Bond ratings Tom Wolf Commonwealth of Pennsylvania Pennsylvania