Gov. Tom Wolf's release on Tuesday of about $23.4 billion in six-month emergency funding for Pennsylvania's school districts and other agencies amid a lingering budget impasse is good news, according to a municipal credit analyst.
"The most pressing issue from a bond-market perspective is school funding, and if this action is able to release the funds, this will be very positive for school district credit in Pennsylvania," said Alan Schankel, a managing director at Janney Capital Markets in Philadelphia.
"This will enable the districts to repay the short-term borrowing and enable them to catch up. Despite all the angst, nobody has defaulted."
Wolf on Tuesday released emergency funds while signing a
Pennsylvania is about to enter the seventh month of its budget impasse. It broke the longevity record last week.
Wolf wants an additional $350 million increase in basic education spending, with a further $100 million for early childhood, special education and Head Start programs. The spending plan the House send him added only $150 million extra.
School districts throughout Pennsylvania have had to borrow roughly $1 billion in the absence of state-aid reimbursements. Social-service agencies dependent on state money have threatened to close. Some counties, including Bucks, have said they would withhold tax money from the commonwealth.
Over the past two weeks, Moody's Investors Service downgraded the entire Pennsylvania state aid intercept program – even lowering Philadelphia School District five notches -- while Standard & Poor's withdrew its ratings. The program enforces bond payments by withholding basic education funding or state aid payments from a school district that defaults on a debt payment and remits the funds directly to the paying agent bank.
Philadelphia had threatened to shut its schools in late January.
"I don't suppose the rating agencies will reverse their actions – it's not in the cards for the time being – but today's action should stop the bleeding," said Schankel.
Illinois is also without a fiscal 2016 budget, though Gov. Bruce Rauner in early December signed a stopgap spending plan that provided $3 billion to backstop local governments, help with heating subsidies, and keep domestic violence shelters operating.
S&P removed Illinois from credit watch last week while affirming its A-minus general obligation rating.
All three major credit rating agencies downgraded Pennsylvania's general obligation bonds this year citing budget imbalance and pension liability. Moody's Investors Service rates the commonwealth at Aa3 with a negative outlook while Fitch Ratings and S&P rate the Keystone State AA-minus with stable outlooks.
The drama in Harrisburg, meanwhile, continues. Throughout December, Wolf and House and Senate leaders continually bickered over a tax-and-spending package to backstop the budget.
"While I am appreciative that the governor will finally release some of his hostages and send some of the monies out to our schools and human service programs, it is disturbing to realize that his partial veto is reflective of his demand for a higher sales or income tax to spend even more money," said House Majority Leader Dave Reed, R-White Township.
David Fiorenza, a Villanova School of Business professor and former chief financial officer of Radnor Township, Pa., said further bond rating downgrades is on Wolf, not the legislature. "Gov. Wolf already had the option of a line item veto since July 1 but chose not to exercise it,' said Fiorenza. "Blaming the Republicans accomplishes nothing at this point."
Pennsylvania has been late with 10 of its last 13 budgets.
Mark Schwartz, a Bryn Mawr, Pa. attorney and former legislative coordinator for the Democratic leadership under House Majority Leader K. Leroy Irvis, remembers when tardiness was unthinkable.
"We would be aghast at the prospect of a slightly late budget. This new group has no shame," said Schwartz, who represented the Harrisburg City Council in its unsuccessful attempt to file for Chapter 9 bankruptcy in 2011.
"The governor who was elected on his supposed business acumen has proven that claim to be a joke. He acts like a trust-fund baby," said Schwartz. "The problem is that the General Assembly and the governor's office live in a bubble. With great pay and benefits they have no concept of what neediness is."
