After Pennsylvania went two days without a revenue plan last week, Standard & Poor’s Global Ratings put the state on it “CreditWatch” list.
Inclusion on the list signifies a state in danger of an imminent credit downgrade.
The commonwealth made it off list this week, after the budget was balanced. A report released by the agency Tuesday reaffirmed Pennsylvania’s AA-minus rating, saying there’s little risk of a downgrade in the near future.
But S&P still said Pennsylvania’s finances are shaky.
John Sugden, a co-author of the report and the senior director at S&P, said the commonwealth was also ranked as having a negative credit outlook.
“What we’re reflecting with our negative outlook is really that the state is structurally unbalanced, in our view, because some of the revenues that they’ve projected might be questionable,” he said. “There might be some optimistic assumptions there.”
The report estimates a $475 million funding gap in the current budget.
That isn’t high enough to warrant a downgrade, but on top of an estimated $1.86 billion structural deficit, it makes the state especially vulnerable to an economic downturn.
Sugden said there is a one-in-three chance the S&P will downgrade the rating in the future.
A lower credit rating would raise borrowing costs for the state, which would likely lead to tax increases.