For the third time in two years, a major bond rating agency gave Pennsylvania a downgrade.
The most recent downgrade, courtesy of Moody’s, has real implications for taxpayers. Moody’s points to “one-time measures”, a “structural impalance,” and “large and growing pension liabilities” as reasons for their downgrade.
This has been a long time coming. For seven straight years—dating back to the Rendell administration and reliance on temporary stimulus funds—Pennsylvania has spent more than revenue. The most recent state budget, while avoiding raising taxes and doing well to keep spending under the rate of inflation and population growth, did not fully fix this structural deficit.
In addition, past decision combined with poor investment performance have resulted in a massive, and still growing, unfunded pension liability. This pension liability and lack of meaningful reform was the primary impetus for Moody’s downgrade.
Due to the downgrade, creditors may require higher interest rates for state and local debt, leaving you to pick up the tab. This threatens taxpayers with future tax increases, and makes Pennsylvania a less attractive state for investment or new businesses.
Moreover, neglecting pension reform could result in the commonwealth, not to mention cities that have their own pension problems, facing Detroit-like insolvency. This month, Detroit workers and retirees voted to accept a 4.5 percent cut in their pension benefits. Such a cut—particularly for retirees—used to be unthinkable in the public sector. But today’s pension crisis represents a triple threat to state and local governments, taxpayers, and employees.
But Detroit’s fate need not be our destiny. By continuing to practice fiscal restraint and addressing long-term cost-drivers via meaningful reform, we can build a Prosperous Pennsylvania.