July 16 (Reuters) - Moody’s Investors Service downgraded Pennsylvania’s general obligation debt to Aa2 from Aa1 on Monday, citing concerns about the state’s growing unfunded pension liabilities and a slow economic recovery.
The cut comes just before a scheduled July 24 sale of $363.6 million in general obligation refunding bonds, which Moody’s rated Aa2 on Monday.
Related bonds were also downgraded a notch, Moody’s said. The actions affected about $13 billion of Pennsylvania’s GO, appropriation-backed and GO-related debt.
Moody’s action did not include debt issued by local governments -- like school districts and community colleges -- under the state’s intercept program, which allows smaller municipal issuers to enhance their own credit ratings by using the state as a kind of pass-through.
Moody’s analysts said in a statement that the rating action was based on Pennsylvania’s weakened financial position, and on “the expectation that large and growing pension liabilities and moderate economic growth will challenge the return to structural balance, contributing to a protracted financial recovery.”
Governor Tom Corbett has recently said that Pennsylvania would soon reform its public pensions.
“It’s going to be a working summer to start coming up with some recommendations, because I don’t think there is a silver bullet to this,” Corbett, a Republican, told Reuters on Friday at the sidelines of a National Governors Association meeting. “If there was, everybody would be doing it.”
Pennsylvania’s public pension gap was $29 billion in 2010, according to the Pew Center on the States. It was funded at 75 percent, which is lower than the recommended 80 percent but higher than at least half of other U.S. states.
The credit rating agency also revised its outlook to stable from negative, saying that the state’s economy has stabilized but will grow more slowly than other states on average.
A spokesman for Governor Tom Corbett did not reply to a request for comment.