Standard & Poor's said Sept. 9 that its ratings for Pennsylvania, including its AA-minus general obligation bond rating, remain unchanged despite the lack of an enacted budget.

Two months into fiscal 2016, Pennsylvania's lawmakers have yet to agree on how to fund the $30 billion budget. Negotiations have continued as Democratic Gov. Tom Wolf and Republican legislative leaders try for a middle ground on pension overhaul and education funding. Wolf's spending plan calls for $3 billion in pension obligation bonds. Pennsylvania estimates its unfunded pension liability at $53 billion.

Nine of Pennsylvania's last 13 budgets have been late.

S&P and Fitch Ratings assign AA-minus ratings to Pennsylvania GOs. Moody's Investors Service rates them Aa3. Moody's last week said bondholder risk in the absence of a signed budget was minimal.

Pennsylvania's constitution provides that if funds are insufficient for timely payment of all commonwealth GO bond debt service, the treasurer must set aside from the first revenues thereafter enough to pay principal and interest on the debt.

"As such, GO debt has a priority lien on state revenues and is paid even in the absence of a budget," said S&P. "Pennsylvania, which is no stranger to late budgets, typically schedules its non-GO debt to mature in December and June, with a few exceptions, which the state has currently addressed."

These include Pennsylvania Economic Development Financing Authority lease revenue bonds and certificates of participation. On Sept. 1, the state paid its debt service on the authority's series 2012 bonds for the Forum Place. Philadelphia Regional Port Authority's Series 2008 lease revenue debt, also due Sept. 1, was paid with proceeds from a loan to the state Department of Transportation from the state's motor license fund.

Payments for debt service on COPs issued by the Department of Human Services come due on Oct. 1 and are included in payments made to DHS to keep the facilities operating. The commonwealth has also indicated said the payments for the Pittsburgh and Allegheny County Sports and Exhibition Authority Series 2010 lease revenue bonds will be made from the commonwealth's Gaming Economic Development Tourism Fund and are not subject to appropriation.

With a budget, no state aid payments are flowing to Pennsylvania's school districts. "We believe that the lack of funding for school districts could translate into increased pressure on lawmakers and provide an incentive for them to reach budget consensus over the next couple of months," said S&P.

S&P last week placed all school district and community college ratings based on the state aid intercept program on credit watch with negative implications.



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