Financial analysts say Pa. taxpayers to pay the price for credit downgrade

HARRISBURG, Pa. -- As the state House and Senate continue to battle it out over balancing the state budget, Pennsylvania's credit worthiness has taken a hit.

After months is warnings from the state treasurer, the financial services company Standard and Poor's lowered the commonwealth's credit rating.

The state treasurer's office notes that this is is sixth downgrade or negative credit watch on Pennsylvania since 2011. Some say the repercussions could last for several years to come.

After months of talks, the General Assembly continues to fail to agree on how to pay for Pennsylvania's $32 billion budget. That failure has earned the an A+ S&P credit score, down from a AA-.

Integrity Wealth Strategies managing principal Joe Mahoney said "it's a good rating, it's a very solid rating, but it's not like getting an A+ on your report card. If you look at it from a report card standpoint, you would want your credit score to be a triple A. And so, we were AA-. The more A's the better. Now we're A+, which is a step under."

Keystone Research Center economist Stephen Herzenberg said "there are already two states with a lower credit rating than Pennsylvania, two with the same rating as Pennsylvania, that's not a ranking you want."

Still, getting a A+ might not sound that bad to some, but as Mahoney explains, it's Pennsylvania taxpayers who will pay the price for the falling grade.

"We might have to pay an extra 25 basis points, and when we're talking about billions of dollars, you're probably looking at $5 million a year more in just tax bond interest payments, that ultimately will come out of the taxpayers pocket, you and I," Mahoney said.

"That's going to fall squarely on on the shoulders of the Pennsylvania residents. Obviously, we're going to have to pay more taxes somewhere, because you can't just create $5 million out of thin air. Really, the only revenue system that any state has, is the taxpayer," Mahoney added.

"To essentially burn the taxpayers' money, in a situation where you're struggling to find enough revenue for the government that you want, the education, the healthcare, the human services that you want, it is completely irresponsible," Herzenberg said.

Credit ratings are ranked from AAA down to D. Getting the state's score to go back up could take years, even if the General Assembly passed a balanced budget budget sometime soon.

"They're not going to be quick to raise our credit back to AA. This is going to be maybe three, five, ten years of us earning our credit rating back," Mahoney said.

"The ratings agencies aren't quick to downgrade you, they're even less quick to upgrade you. Especially, when you look around at the Pennsylvania budget, the problems that are being discussed, aren't going away," Mahoney added.

Herzenberger believes the state's credit downgrade could have a slightly positive effect on legislators.

"You would think at this point the public pressure would increase," Herzenberg said.

Hopefully, this will in fact be resolved in the next few weeks," Herzenberg added.

The hope is to resolve the issue of how to pay for this year's budget, before it's time to start thinking about next year's.

Rep. Frank Ryan (R-Lebanon) offered this statement on the credit downgrade:

I was elected by the people of the 101st Legislative District, not a bond rating agency on Wall Street that has made its share of dubious calls over the decades. As a financial professional, I do not discount the short-term effects of a credit downgrade, but let us remember this is one of the same firms that gave repeated AAA ratings to the junk bonds that created the housing crisis and led to one of the worst economic downturns our nation has ever seen.

Financial security, as in warfighting, depends upon a solid plan and flawless execution. Neither of those things are possible when folks panic and/or seek to score temporary political points. What will fix this situation is a solid revenue plan that reins in spending and holds the line on taxes. That will create jobs, which in turn will bring in the revenues needed for government operations. It really is that simple, but it requires unwavering discipline.