Blame All Around for Pennsylvania's Credit Downgrade

by | September 21, 2017

By Beth Brelje

S&P Global Ratings downgraded Pennsylvania's credit rating Wednesday, citing a history of late budgets. The action caused a lot of dramatic words from state leaders and many calls to settle the budget, but no signs of compromise. Wednesday's downgrade marked S&P's sixth negative action or statement on Pennsylvania's creditworthiness since 2012.

"For months, I have warned that a credit downgrade was looming," Gov. Tom Wolf said in an emailed statement. "I have said repeatedly for three years that we must responsibly fund the budget with recurring revenues."

Wolf praised the Senate, saying it acted responsibly by funding the budget with "recurring revenues to eliminate the deficit," presumably referring to the chamber's 26-24 vote July 27 that included taxes on utility bills and a severance tax on natural gas extracted from the Marcellus shale.

He said his administration had worked to hold off a downgrade and that it is time for an immediate resolution.

"If an agreement has not progressed by next week," the governor's statement said, "I will be forced to take further steps to manage this situation."

State Sen. Judy Schwank, a Ruscombmanor Township Democrat, had one idea.

"If the unthinkable happens and there is no agreement by Sept. 30," she said in an interview Wednesday, "I urge the governor to withhold payments to both the Legislature's members and their staff."

All of the House's top Republican leaders -- including Majority Leader Dave Reed of Indiana County, Appropriations Committee Chairman Stan Saylor of York County and Speaker Mike Turzai of Allegheny County -- reacted to the downgrade in a joint statement, also emailed to the news media, that seemed to blame top state Democratic officials for the S&P action.

"When those in charge of the checkbook -- the same fiscal officers who approved the deficit spending last fiscal year -- very publicly refuse to pay bills, even as bank accounts hold billions, of course our credit rating will take a hit."

In a two-page letter sent Sept. 12 to lawmakers and Wolf, state Treasurer Joseph M. Torsella and Auditor General Eugene A. DePasquale, both Democrats, cited the state's imminent inability to pay its bills. Three days later, Pennsylvania delayed a payment of $1.67 billion in reimbursements under Medicaid and delayed $581 million in payments to school districts on Monday. Their letter said further borrowing "creates an economic 'moral hazard' that effectively increases the long-term risks to the commonwealth's finances" and that they were therefore "disinclined to support additional lending" to the state's General Fund.

What is not clear is why Torsella and DePasquale were being blamed for approving deficit spending. Neither has a say in approving the state budget.

Torsella also reacted to the downgrade in an emailed statement, calling the downgrade "a backdoor tax for Pennsylvanians, as costs increase for the state to borrow money in the future."

In a news release Wednesday, S&P credit analyst Carol Spain offered several reasons for the downgrade of Pennsylvania's credit rating one notch to A-plus: the state's chronic structural imbalance dating back nearly a decade; a history of late budget adoption; and S&P's opinion that this pattern could continue.

"We understand," Spain said, "that the commonwealth plans to make payments to both the Medicaid insurers and school districts within a week of the scheduled due dates; however, in the absence of additional liquidity, and with the likely need for external borrowing, these late payments could recur."

(c)2017 the Reading Eagle (Reading, Pa.)