Moody’s to Pennsylvania: You’re So Negative

The budget impasse is creating more problems for Pennsylvanians with each passing dayalready costing taxpayers at least $11 million. Gov. Wolf has been using the gridlock as an excuse to cut off a lifeline to students looking to avoid violent and failing schools. Now, the governor’s refusal to budge is affecting the state’s credit outlook.

Last week, Moody’s Investor Service revised Pennsylvania’s outlook from “stable” to “negative.” This means Moody’s believes Pennsylvania’s credit rating will likely fall (again) absent any significant reforms. A drop in the state’s credit rating will make it more expensive to borrow, leading to a higher tax bill for workers.

If you’re a regular reader of PolicyBlog, the reasons Moody’s cited for the outlook change won’t surprise you:

The negative outlook reflects the difficulty the commonwealth is likely to have closing its structural budget gap in light of the contentious political environment. Pennsylvania is more than 100 days into an impasse over its budget for fiscal 2016, which began July 1. Large tax increases in the executive budget proposal that are designed to close the commonwealth's budget gap have failed to pass, while alternatives enacted by the legislature have been vetoed. Meanwhile, ongoing expenditures exceed ongoing revenues by about $2 billion; the structural gap is higher accounting for the commonwealth's pension contribution shortfalls relative to its actuarial required contributions. Amid its extreme political gridlock, the commonwealth will be challenged to find solutions to its fiscal imbalance.

Moody’s suggests a number of possibilities to improve the outlook: raise revenue or cut spending to eliminate the structural deficit; make substantial progress toward increasing pension funding levels; and increase economic growth, which boosts revenue gains above projections.

Of these possibilities, raising revenue without tax increases, cutting government spending, and putting the pension systems on a path to sustainability make the most sense. After decades of spending growth, Pennsylvania already has one of the highest tax burdens in the country, and we have little to show for it.

By limiting the size of government, lawmakers can protect workers from government waste and create an environment where people who work hard can provide for themselves and their families.