MuniMetrics MVP v6.6.5

Recommendation: Watch Core Thesis: The Commonwealth of Pennsylvania General Obligation Bonds, First Series of 2026 and First Refunding Series of 2026, warrant a Watch posture based on the preliminary rule-based total score of 64, both system and analyst recommendation of Watch, and unresolved analyst-review items. The General Obligation pledge and State Government issuer profile are supportive, and the framework shows positive score contributions across Financial Trend Strength, Economic Resilience, Debt Burden / Coverage, Temporary Funding Dependency, Governance / Disclosure Quality, and Bond Structure Protections. However, fiscal 2024 and fiscal 2025 both show deficits, with fiscal 2025 reported and adjusted surplus both negative $3.666 billion. General Fund balance / unrestricted reserves declined from $8.085 billion in fiscal 2023 to $6.632 billion in fiscal 2024 and $4.156 billion in fiscal 2025. Temporary funding dependency is currently classified as Low, with latest temporary funding equal to 0.0% of revenue, but multiple temporary funding, operating-support, reimbursement, capital-only, and unclear federal or special-fund findings remain unapproved and require analyst validation before final approval. Why This Bond May Be Attractive: - The bonds are General Obligation bonds of the Commonwealth of Pennsylvania. - The issuer is a State Government issuer. - The preliminary rule-based outcome is Watch, supported by a total score of 64. - Score components show positive contributions across several categories: - Financial Trend Strength: 10 - Economic Resilience: 14 - Debt Burden / Coverage: 15 - Temporary Funding Dependency: 20 - Governance / Disclosure Quality: 8 - Bond Structure Protections: 5 - Temporary funding dependency is currently classified as Low. - Latest temporary funding is reported at 0.0% of revenue. - Reported and adjusted recurring results were positive in fiscal years 2021, 2022, and 2023: - Fiscal 2021: revenue of $93.885 billion versus expenses of $88.768 billion, surplus of $5.117 billion. - Fiscal 2022: revenue of $108.013 billion versus expenses of $100.650 billion, surplus of $7.363 billion. - Fiscal 2023: revenue of $93.791 billion versus expenses of $91.164 billion, surplus of $2.627 billion. - General Fund balance / unrestricted reserves remained positive at $4.156 billion in fiscal 2025. - Fiscal 2023 notes indicate General Fund revenues exceeded General Fund expenditures and a partial transfer of surplus to the Budget Stabilization Fund in the amount of $898; later findings also reference $737 transfers related to budget stabilization. These items remain unclear / analyst review required. Why This Bond Requires Caution: - Fiscal 2025 reported and adjusted surplus are both negative $3.666 billion. - Fiscal 2024 also showed a deficit: - Revenue of $93.003 billion versus expenses of $94.381 billion, deficit of $1.378 billion. - Fiscal 2025 showed a larger deficit: - Revenue of $98.312 billion versus expenses of $101.978 billion, deficit of $3.666 billion. - General Fund balance / unrestricted reserves declined over the last three reported fiscal years: - Fiscal 2023: $8.085 billion - Fiscal 2024: $6.632 billion - Fiscal 2025: $4.156 billion - Rule-based red flags identify: - Latest-year adjusted recurring results show a deficit. - Possible temporary funding used for operating support. - High-risk temporary funding reference requires analyst review. - All annual financial trend rows are marked “Analyst review required” and are not analyst approved. - Annual trend notes state that the data were extracted from ACFRs using budgetary-basis General Fund language and should be reconciled against GAAP governmental fund statements before final approval. - Debt service fields in the annual financial trend rows are populated as 0.0, so debt service and coverage conclusions should not be relied upon without validation. - Temporary/artificial funding findings remain unapproved and include high-risk reimbursement and operating-support references, medium-risk temporary funding references, capital-only references, and unclear items. Temporary Funding / Artificial Support Analysis: - The rule-based metrics currently classify temporary funding dependency as Low, with latest temporary funding equal to 0.0% of revenue. - Annual financial trend rows show temporary funding of 0.0 in each fiscal year from 2021 through 2025. - Because no temporary funding has been quantified in the annual trend rows, temporary funds do not currently change the measured latest-year recurring result; fiscal 2025 reported and adjusted surplus are both negative $3.666 billion. - However, the document findings include multiple references that require analyst review before concluding that temporary funding does not affect recurring credit strength. Specific temporary/artificial support items: - Operating support: - Fiscal 2023 includes a High-risk, High-confidence COVID-related finding classified as Operating Support, referencing Department of Human Services COVID funding related to the medical assistance program and the end of SNAP COVID emergency benefits. - Temporary funding: - Findings include CARES, ARPA, American Rescue Plan, Coronavirus State Fiscal Recovery Fund, ESSER, GEER, emergency relief, fiscal recovery funds, federal grants, one-time items, and rescue plan references. - Fiscal 2025 includes a finding that Act 54 of 2024 provided for reallocation of unexpended, uncommitted, and unencumbered funds received under the American Rescue Plan Act and appropriated from the COVID-19 Response Restricted Account to be utilized by the Department of Corrections. - Fiscal 2024 includes references to State and Local Fiscal Recovery Funds, COVID-related education reimbursements associated with ESSER and GEER programs set to expire in fall 2024, and remaining ARPA-related funds. - Fiscal 2023 includes references to CARES Act, ARPA, ESSER, GEER, COVID funding, and federal Coronavirus State Fiscal Recovery Fund monies. - Reimbursement funding: - Fiscal 2023, fiscal 2024, and fiscal 2025 each include High-risk, Medium-confidence findings classified as Reimbursement Funding, stating that internal service funds are designed to function on a cost-reimbursement basis, primarily providing benefits to other funds, departments, or agencies of the Commonwealth. - Capital-only funding: - Fiscal 2024 includes Low-risk, High-confidence capital-only findings referencing use of federal funding opportunities provided through the Infrastructure Investment and Jobs Act, Inflation Reduction Act, and remaining ARPA funds, while also continuing to utilize other special funds to meet critical program and administrative needs. - Unclear / analyst review required: - Budget stabilization references remain unclear, including the fiscal 2023 partial transfer of surplus to the Budget Stabilization Fund in the amount of $898 and fiscal 2024 / fiscal 2025 references to $737 transferred to the Budget Stabilization Fund or Rainy Day Fund Pool. - Certain federal grant and fiscal recovery fund references are also classified as unclear / analyst review required. Reported vs. Adjusted Credit View: - The reported and adjusted credit view are currently the same in the rule-based metrics. - Fiscal 2025 latest reported surplus: negative $3.666 billion. - Fiscal 2025 latest adjusted surplus: negative $3.666 billion. - Temporary funding is shown as 0.0 in each annual financial trend row from fiscal 2021 through fiscal 2025. - Because no temporary funding has been quantified, separating temporary funding currently does not alter the measured surplus / deficit profile. - The recurring trend still weakens materially in the last two fiscal years: - Surpluses in fiscal 2021, fiscal 2022, and fiscal 2023. - Deficits in fiscal 2024 and fiscal 2025. - The adjusted view remains cautious because the latest-year deficit persists before any additional analyst adjustments for temporary funding, operating support, reimbursement items, capital-only resources, or unclear federal / special-fund items. Key Follow-Up Before Final Approval: - Reconcile the budgetary-basis General Fund revenue, expenditure, surplus / deficit, and fund balance figures against GAAP governmental fund statements before final approval. - Confirm whether the 0.0 temporary funding entries in the annual financial trend rows are appropriate for fiscal years 2021 through 2025. - Review and approve, reject, or reclassify all temporary/artificial funding findings, including: - Operating Support finding related to fiscal 2023 COVID funding for the Department of Human Services