Moody's to Pa.: Balance your budget or face higher borrowing costs

In advance of Pennsylvania's plan to borrow another $1.2 billion in a July 19 general-obligation bond issue, Moody's has slapped Pennsylvania with another Aa3 bond rating, among the lowest of any state -- and warned it may cut the rating another notch.

Moody's "Negative Outlook" warning "reflects the likelihood that the Commonwealth's credit challenges are likely to worsen in the near term absent political compromise," along with the state's usual slow economic growth, Moody's added.

"The coming months will be crucial. If the Commonwealth is able to balance the budget, either through revenue increases or expenditure decreases or a blend of each, its credit could stabilize at the current level.

"If not, further budget deterioration" will likely mean a lower credit rating and higher financing costs. Pennsylvanians pay around half a percentage point extra to borrow, compared to AAA-rated, budget-balanced states like Delaware and Maryland.

That drains Pennsylvania taxpayers of tens of millions of dollars a  year. New Jersey and Illinois are the only states with worse credit ratings than Pennsylvania.