Moody's cuts PA bond rating: Update
To Aa2. Cites weak economy, failure to fund state worker and teacher pensions
Moody's cuts PA bond rating: Update
Joseph N. DiStefano
(Adds analyst comments)
Less than a week before Pennsylvania's planned $363.5 million general-obligation bond sale, Moody's Investor Service has cut Pennsylvania's bond rating to Aa2 from Aa1, citing the Commonwealth's "large and growing pension liabilities and moderate economic growth," which "will challenge the return to structural balance, contributing to a protracted financial recovery," according to the report.
"The downgrade also reflects the Commonwealth's high debt position, related to moderate bonded debt levels and a sizeable unfunded pension liability," Moody's said.
Lower bond rates often translate to higher borrowing costs because borrowers have to pay investors more to buy their riskier debt. But given today's rock-bottom interest rates and the big investor demand for scarce tax-free municipal bonds, Pennsylvania might not feel the pinch anytime soon.
"Their issues have been pretty well known," Steve McLaughlin, senior vice president at R. Seelaus & Co. in Summit, NJ told me. Moody's had previously warned it was weighing a downgrade of PA debt; the cut removes the uncertainty. "This could cost them a few basis points, but the demand for highly-rated state-issued debt is pretty strong right now."
An increase of 5 basis points (or 5% x 1%) would increase borrowing costs on the new PA bond issue by $180,000 a year. Tom Kozlik, municipal bond analyst at Janney Montgomery Scott in Philadelphia, said most of the increase has "already been priced in" to PA bond yields.
"Pennsylvania remains a very strong credit," he added, "but will have to spend more," Kozlik added, to finance pensions to state legislators, judges, Penn State employees, prison guards, schoolteachers and other school employees, and others that a series of Pennsylvania governors and General Assemblies have promised to pay but failed to fund. As Kozlik said, the more the state belatedly sets aside for promised pension checks, the more they'll be "taking resources away" from other programs.
Great Job Republicans!
We elect Corbett and our bond rating gets down-graded?
Just like our nations credit rating under the Republican congress?
I thought republicans knew one thing - business.
Apparently not.— Owatagoofiam- Republicans don't know business - they only know how to "talk" business.
Then they try to convert their fondness for business talk into evidence that they can and should govern the nation. - How quickly voters forget ... Sunday, February 14, 2010 - Gov Rendell-"school districts are about to go from paying about $660 million next year toward pensions to nearly $1.9 billion" "At least one person in state government is trying to raise the level of alarm about this issue and that’s Gov. Ed Rendell.
He deserves credit. It’s not going to be his problem — he’ll be gone by the time the spike hits taxpayers, and he didn’t create it. His predecessor, Gov. Tom Ridge, was the one who endorsed the increase in benefits for public employees and school teachers. Legislators also had their pensions increased as well. Gov. Ridge then told school districts not too worry, they wouldn’t have to pay for it for more than a decade." This is not a dem or republican issue ... The heart of this problem is that districts and the state have not been putting aside the necessary money to pay for the increase that will allow many teachers and public employees to retire at basically their full salary. Meanwhile, the teachers have been making the necessary contributions.
The Ridge “plan” was based on the assumption of the stock market growing at an annual rate of more than 11 percent. Bad bet.
Gov. Rendell used his budget address last week — arguably his most high-profile event of the year — to lay out a plan to sort out the pension crisis and make the burden manageable.
His solution is to phase in the increases over the next decade by "re-amortizing the debt". That means taxpayers won’t be hit with the sudden jolt. It will be spread out." Guess taxpayers have reached that spread out year.
— Moving On - Without Philly and Pittsburgh this would be a great state.— Ralph 1
- Uhh, people seem to be forgetting that Gov. Ed Rendell didn't put any money into the pensions during his eight years in office. It's true that Ridge signed into law changes that increased pension benefits, but that was when the state pensions were completely funded. Ridge & Schweiker deserve some blame for not altering the state's contribution amount, but when they left office, the pensions still had plenty of funding to cover their obligations. However, when Rendell took office, it became very clear that the state's pension contributions were no longer enough to meet the future needs of the retirement systems. And following the recession, the primary source of pension funding - returns on pension system financial investments - tanked, leaving a huge hole in the reserves for the systems. Instead of increasing payments - and working with lawmakers to hike those contributions, Rendell allowed those contributions to continue at next to nothing, significantly adding to the crisis we have now.
Sure, he signed legislation into law that kicked the pension issue down the road a few years - after his second term was over - but did little during his eight years to properly fund the systems even though it was very clear during most of his tenure that the state was not properly funding the systems. Instead, he raised taxes several billions of dollars and used that money for other things, knowing full well that his decisions would leave the pension problem for the next governor.
Corbett has his problems, but at least he's paying the state pension obligations. The question is now if pension will be altered significantly from their current form and if lawmakers are willing to test the courts to see if the system can be changed for current beneficiaries as well as future ones.— Watching and Waiting
