S&P Global Ratings raised its rating on Luzerne County, Pa.'s general obligation (GO) bonds and guaranteed lease revenue bonds issued by Luzerne County Industrial Development Authority, Pa. three notches to 'A-' from 'BBB-' based on the county's significantly improved financial performance. The outlook is stable.
In the past, Luzerne County has suffered from a structural operating imbalance that resulted in a negative unassigned general fund balance.
"Following several years of positive operations, the county's reserves and liquidity have improved significantly, indicating clear progress in addressing the imbalance," said S&P Global Ratings credit analyst Jane Ridley. Given ongoing expenditure pressures facing the county--particularly from rising pension costs--as well as its limited ability to raise taxes, we have kept the 'A' rating cap, indicating the existence of a structural imbalance in the recent past. The rating cap will likely remain until the county demonstrates the ability to generate operating surpluses and meet all requirements in a timely manner.
The stable outlook reflects our expectation that over the two-year outlook horizon, the county will maintain balanced operations while meeting all of its ongoing financial commitments. Luzerne has made significant strides in improving its reserve position, but we remain cautious as to whether the rising fixed costs associated with its underfunded pensions will push the county back to an unbalanced position.
If the county can maintain budgetary balance while addressing rising expenditures, we could remove the rating cap or raise the rating.
If Luzerne again reverts to adopting structurally imbalanced operations or reserves weaken materially, we could lower the rating.
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information.
Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
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