By Jared Sichel | PA Independent
HARRISBURG — A major credit rating firm may soon downgrade another set of Pennsylvania bonds, and the move could affect state schools.
Old Main on the campus of Shippensburg University in Pennsylvania. The school is one of 14 in the state’s system of higher education that could face a debt rating downgrade from Moody’s
Moody’s Investors Service on Wednesday announced it has placed $942 million worth of bonds issued by Pennsylvania’s 14 state-owned universities “on review for downgrade.”
Monday, the service downgraded the state’s general obligation bonds from Aa1 to Aa2,
Investors use Moody’s rating as one tool in determining a bond issuer’s risk of defaulting on bond payments.
Within 90 days, Moody’s will decide whether to downgrade the universities’ bonds from Aa2 to Aa3.
Bonds with those ratings are still considered “high grade” forms of debt, so the university system’s bonds are still relatively strong, according to Moody’s. But the downgrade reflects a growing concern that Pennsylvania’s government and its institutions will have difficulty funding future debt payments due to the pension crisis, which is growing faster than the economy.
The Moody’s report cited the “high-post retirement liability” of the university system’s “unionized faculty and staff work force” as one reason for its review.
Because Moody’s usually ranks the university system’s bonds one notch below those of the state, the review for downgrade is not a surprise.
“If they keep with historic trends they probably will downgrade us one notch,” said university system spokesman Kenn Marshall. “I don’t think it will be significant because we’ll still have a pretty strong rating.”
