Pennsylvania welcomes Fitch's outlook revision
Pennsylvania’s outlook revision by Fitch Ratings to stable from negative is welcome news to a state that has been through a series of downgrades.
Fitch took the rating action on Tuesday while affirming the commonwealth’s issuer default rating at AA-minus.
The new outlook, according to Fitch, “reflects the commonwealth's timely enactment of a fiscal 2020 budget that makes continued strides towards structural balance, while also making a notable deposit to its rainy day fund.”
Additionally, Fitch has affirmed its AA-minus ratings on the commonwealth's outstanding general obligation bonds, its A-plus and AA-minus ratings on bonds supported by commonwealth appropriations or otherwise capped at Pennsylvania’s issuer default rating, and its A-plus ratings on the commonwealth school credit enhancement programs linked to the IDR.
Pennsylvania had received across-the-board downgrades over the previous three years. Bond rating agencies referenced late budgets and escalating unfunded pension liabilities.
The improved outlook is warranted, said Villanova School of Business professor David Fiorenza.
“The commonwealth has finally been able to produce and approve a budget on time and is relying on new revenues from gambling and sports betting to be able to continue to fund services,” said Fiorenza, a former chief financial officer if Radnor County, outside Philadelphia.
Moody’s Investors Service and S&P Global Ratings rate Pennsylvania GOs Aa3 and A-plus, respectively, both with stable outlooks. The commonwealth sold $900 million of GOs in June.
Gov. Tom Wolf in late June signed a $34 billion fiscal 2020 budget on time and without the political bickering of previous years. Wolf, a Democrat in the first year of his second four-term, works with a Republican-dominated legislature. Wolf also announced a $317 million deposit into the state's rainy-day fund, marking the commonwealth's largest such transfer in two decades.
"As wages continue to rise steadily, but slower than other states, tax revenues will rise steadily along with consumer confidence,” Fiorenza said. “The state still has a lot to offer from natural resources to tourism for its long-term growth outlook."
Fiorenza, however, advised investors to watch for any signs of slowing in the housing market that may trigger a recession after 2020.
“The commonwealth recovers slower than other states due to its diverse demographics of population and income,” he said.
Also Tuesday, Wolf announced that retail behemoth Amazon Inc. intends to expand in Pennsylvania and create more than 800 full-time jobs in Allegheny County. Amazon will open a non-sortable fulfillment center in Findlay Township, about 20 miles west of Pittsburgh.
The company will move into a new 1 million-square-foot distribution facility that Hillwood Group and Chapman Properties will construct.
According to Wolf, Amazon has committed to investing more than $30 million into the project.