Moody’s revises Pennsylvania’s outlook to positive from stable

Moody’s Investors Service revised its credit outlook on Pennsylvania to positive from stable and affirmed the state’s Aa3 issuer and general obligation bond ratings. There are about $10.7 billion of GOs outstanding.

Additionally, Moody’s affirmed the state’s A1 and A2 ratings on its outstanding appropriation backed debt, the A1 rating on the Pennsylvania School District Intercept Program and the A2 rating on the Pennsylvania General Municipal Pension System State Aid Program.

Moody’s also affirmed the A1 rating on Pennsylvania Turnpike Commission’s $992 million of outstanding motor license fund-enhanced turnpike subordinate special revenue vonds.

The outlooks on all of these bonds have also been revised to positive from stable, Moody’s said.

“Pennsylvania’s positive outlook is based on the significant increase in budget reserves over the past three fiscal years to levels consistent with higher-rated peers,” Moody’s said. “We expect that core rainy-day reserves will remain near current levels due to sound budget management and continued steady revenue growth.”

Moody’s said the outlook on the GOs, the state appropriation-backed debt, the intercept programs and the PTC MLF-enhanced bonds is tied to that of the state.

Moody’s said its issuer and GO ratings incorporate the state’s “recently improved financial position and above-average long-term liabilities dominated by its unfunded pension burden.”

Moody’s said its rating “also incorporates Pennsylvania’s large and diverse economy, with two significant urban hubs in Philadelphia (A1/stable) and Pittsburgh (A1/stable).

“Economic performance has historically lagged the nation, but has improved somewhat over the past year, and state revenue has been stronger than expected for three consecutive fiscal years,” Moody’s said. “As a result, the commonwealth has set aside $5.1 billion in budget stabilization reserves since fiscal 2020.

“The commonwealth has also accumulated important liquidity outside the rainy-day fund, however these may be spent down to fund ongoing spending pressures, balance the end of federal stimulus aid and support capital investments,” Moody’s said.

S&P Global Ratings assigns an A-plus rating to the state’s GOs while Fitch Ratings assigns an AA-minus rating to the GOs. S&P has a stable outlook on the bonds while Fitch has a positive outlook on the credit.

“The stable outlook reflects our view that Pennsylvania will maintain a meaningful reserve cushion after building its budget stabilization reserve over the past two fiscal years,” S&P analyst Geoffrey Buswick said in August 2022 when the state sold $1 billion of GOs.

“The positive outlook reflects Pennsylvania’s recent use of significant revenue surpluses to build its reserves to historical highs, suggesting a potentially material improvement in the commonwealth’s operating performance,” Fitch said last year.

Kroll Bond Rating Agency doesn’t rate the state’s GOs but does assign an AA-minus rating to the Pennsylvania Turnpike Commission’s bonds.