Pennsylvania plans to sell $950 million of general obligation bonds by competitive sale on Tuesday.
Proceeds will fund capital projects, provide grants for local water and sewer projects, and help finance a green-oriented bond fund.
Fitch Ratings assigned a AA-plus to the bonds, while Moody’s Investors Service and Standard & Poor’s assigned a Aa1 and a AA, respectively. Fitch also affirmed the AA-plus on $9.9 billion of outstanding commonwealth GO bonds.
Public Financial Management Inc. is financial advisor. Reed Smith LLP is bond counsel and Obermayer, Rebmann, Maxwell & Hippel LLP is special disclosure counsel.
According to a preliminary official statement, $879 million, or 93% of the proceeds, will go toward capital facilities projects, while the Pennsylvania Infrastructure and Investment Authority, or PennVest, will receive $46 million and the Growing Greener II program is earmarked for $25 million.
PennVest funds sewer, storm water and drinking water projects. Growing Greener II emphasizes strategic investments that preserve natural resources.
The bonds, first series of 2012, will mature from 2013 to 2032, according to a preliminary official statement.
Fitch and Moody’s cited Pennsylvania’s low-to-moderate debt burden, while warning about the state’s widening pension liability.
“The negative outlook reflects the commonwealth’s still-limited financial flexibility and the challenge presented by current revenue underperformance and expected significant growth in annual pension funding obligations in the next few fiscal years,” Fitch said.
Moody’s said its rating incorporates the strengthened budget for fiscal 2012 that was on time and more structurally balanced than the previous year.
But the agency also noted that the pension funded ratio has fallen to 75% and will keep declining until 2017, when Pennsylvania will start making full, actuarial recommended contributions under current legislation.
Gov. Tom Corbett’s proposed fiscal 2013 budget holds expenses flat compared with the previous year, while increasing required pension contributions by $400 million to just over $1.6 billion.
General fund revenue growth is forecast at 4.7% above the revised expectation for fiscal 2012, with sales and income tax revenues projected to rise by 4% and 4.7%, respectively.
Corbett’s proposed budget projects an $11 million balance by the end of the fiscal year. “Fitch will continue to closely monitor budget and revenue developments,” the rating agency said.
The state’s debt is primarily GOs, and 62% is retired within 10 years, according to Fitch. Its annual contribution for pension systems is expected to spike beginning in 2013.
Also this week, the Pennsylvania Industrial Development Authority plans to sell $174.8 million of Series 2012 economic development revenue-refunding bonds through negotiated bid. The authority is issuing them to refinance its outstanding Series 2002 bonds and save on debt service.
Fitch assigned an A rating, calling the authority a key economic development arm of the commonwealth.
Moody’s rated them A1, citing the low default rates over the 56 years of the program.