WASHINGTON – Bond rating agencies, muni analysts and even constitutional experts are closely watching Pennsylvania after the commonwealth's $31.5 billion budget -- $1.2 billion revenue hole and all -- became law at 12:01 a.m. Tuesday without Gov. Tom Wolf's signature.
Wolf let the budget take effect even though lawmakers were $1.2 billion short of authorizing the revenue needed to fund it.
Midnight marked the end of the 10-day period following legislative approval of the fiscal 2017 election-year spending plan, with nothing happening except for yet another warning shot from the capital markets. The House of Representatives and Senate were expected to reconvene Tuesday, with increases in tobacco taxes and expansion of gambling the main talking points.
S&P Global Ratings late Monday placed Pennsylvania's AA-minus general obligation rating on credit watch with negative implications. Among other broadsides, S&P said budget enactment "calls the strengths of the constitutional balanced budget requirement provision into question."
Some conservative lawmakers say they might challenge Wolf's move in court.
The state constitution requires Pennsylvania to approved balanced budgets annually, though they need not remain balanced during the year. The provision, said S&P, could face new court tests, "and if the unbalanced budget were challenged in court, the outcome is unclear."
S&P said it would remove negative watch if the state can balance its budget within 90 days.
Pennsylvania has received five downgrades in the last three years, with rating agencies frequently citing budget imbalance and an unfunded liability estimated at $63 billion. The fiscal 2016 spending plan was nine-months before Democrat Wolf let it become law, also without his signature, after he and the Republican-controlled legislature could not reach a middle ground.
Moody's Investors Service rates Pennsylvania Aa3, while Fitch Ratings assigns its AA-minus rating. Their outlooks are negative and stable, respectively.
The move came in advance of the commonwealth's planned $1.2 billion GO bond sale for July 19.
Pennsylvania's second series of 2016 bond proceeds will fund various capital facilities projects, including construction and major rehabilitation of public buildings; redevelopment assistance and transportation projects; and projects under the PennWorks water supply and wastewater infrastructure program that defray the financial costs to making grants to local governments and authorities.
The deal is to be sold competitively.