Credit rating downgrade a wake-up call
Pennsylvania government and state taxpayers will have to live with ramifications from the commonwealth’s latest credit downgrade, regardless of when full funding of the $32 billion 2017-18 state budget, passed nearly three months ago, finally is accomplished.
On Wednesday, Standard & Poors Global Ratings downgraded the Keystone State to A+ from AA-, the latest in a series of such actions over the past several years, because of this state government’s persistent inability and unwillingness to come to grips with the its fiscal problems.
Pennsylvania needs healthy recurring revenue, but the Legislature and the executive branch, during the current Wolf administration as well as several prior administrations, have played games with their fiscal responsibility.
The two governmental branches have opted for one-time patchwork fixes and overly optimistic, unrealistic incoming-revenue projections, and failed to act on issues — such as gambling expansion — that would have brought in more money to the state’s coffers.
Consequently, as a result of Wednesday’s Standard & Poors bond-rating reduction, borrowing by the state will be more costly, going forward, and those additional costs will be borne by the state’s taxpayers. Predictably, the credit-rating development sparked criticism from both sides of the legislative hall and from the governor’s office.
Meanwhile, outside of the credit-rating action looms a lawsuit filed on Sept. 14 in Commonwealth Court by an advocacy group, a Dauphin County businessman and a Beaver County state lawmaker, asking the court to rule unconstitutional the process by which the 2016-17 and 2017-18 budgets were enacted. Specifically, the lawsuit is challenging the fact that both budgets were passed “without the requisite revenues to pay for the spending.”
Besides Standard & Poors’ announcement on Wednesday, there was another development: The state Senate made its decision known not to support a House-passed patchwork revenue plan that some Harrisburg observers characterized as less responsible than a plan passed by the Senate weeks ago.
The Senate’s decision paved the way for a conference committee that hopefully would be able to iron out the significant differences between the two legislative chambers’ proposals.
Wednesday’s initial partisan potshots related to Standard & Poors came from the predictable sources.
“For months, I have warned that a credit downgrade was looming,” said Gov. Tom Wolf, obviously directing his comment toward the Republican-controlled Legislature. “I have said repeatedly for three years that we must responsibly fund the budget with recurring revenues.”
House Democratic Leader Frank Dermody charged that House Republicans opted to use “almost every gimmick that the credit rating agencies specifically warned against.”
But a joint statement from GOP leaders painted a somewhat different, less-serious picture that state taxpayers also will have to evaluate amid the full context of the budget morass.
That statement expressed disappointment that commonwealth budget costs will increase “thanks to a small group of unknown people at Standard & Poors who make decisions based on interviews with a governor and press releases from the state’s fiscal officers.”
According to the statement, the lower rating still acknowledges that Pennsylvania has a “strong capacity to meet financial commitments” but cautions that the state is “susceptible to adverse economic conditions and changes in circumstances.”
Standard & Poors’ decision represents a wake-up call to Pennsylvania government, nonetheless.
It’s premature to calculate the full impact of the decision on state government, but there will be costly consequences that — unquestionably — could have been avoided.