Pennsylvania Governor-elect Tom Wolf earned a historic victory in ousting the state’s incumbent chief executive last month. Now budget woes and mounting retirement expenses threaten to undermine his campaign pledges.

The 66-year-old Democrat will assume control of a government that has trailed all U.S. states in job growth since 2011. He has to balance promises, including more money for schools, with a $2 billion revenue shortfall for the year that begins July 1. Only New Jersey and Virginia are struggling more than Pennsylvania to fully fund retirement costs, according to Moody’s Investors Service.

Pennsylvania’s credit has been cut this year by each of the three biggest rating companies, to two steps below the average for U.S. states. The grade may fall further if Wolf can’t plug revenue misses, said Bill Delahunty, the head of municipal research in Boston at Eaton Vance Management. Borrowing costs for the sixth-most-populous state may rise should the new governor fail to address the pension burden, said Paul Brennan, a money manager at Nuveen Asset Management, which oversees about $110 billion in munis.

“The liability is growing -- you can’t get away from that math,” Brennan said from Chicago. “Steps towards a solution are what the market wants to see.”

Neighborly Comparison

Neighboring New Jersey provides “a good glimpse of what the future could look” like in Pennsylvania, Brennan said.

In a New Jersey general-obligation sale Dec. 3, relative borrowing costs on 10-year debt were five times greater than in the previous offer in May 2013, data compiled by Bloomberg show.

Wolf, who takes office Jan. 20, plans to work with Republican majority leaders in the legislature on pensions and on introducing a 5 percent tax on natural-gas production, said Jeffrey Sheridan, a spokesman. He remains committed to boosting school funding.

“There needs to be a big emphasis on doing things to grow the economy, like investing in education so that the foundation is laid for long-term growth,” Sheridan said by telephone.

This is the first elected post for Wolf, who was chairman of a family-owned business that supplies kitchen cabinets. He was Pennsylvania’s Revenue Secretary, an appointed position, under Democratic Governor Ed Rendell from 2007 to 2008. With Wolf’s win last month, Tom Corbett became the first governor in Pennsylvania to lose re-election since 1968.

Last Place

Pennsylvania ranked last among U.S. states in job growth from January 2011, when Corbett took office, to October 2014, according to the Bloomberg Economic Evaluation of States index.

“The overall recovery nationwide has been slow, but this is even slower,” said John Sugden, an analyst at Standard & Poor’s in New York.

Investors have a chance to weigh in on Pennsylvania’s credit this month. The state plans to sell general-obligation debt by year-end, said Jay Pagni, a spokesman for Corbett.

Ten-year Pennsylvania bonds yield about 2.48 percent, or about 0.34 percentage point above benchmark munis, Bloomberg data show. In comparison, obligations of California, the most- indebted state, with an S&P rating one step lower than Pennsylvania’s, yield 2.39 percent.

Downgrade History

S&P and Fitch Ratings rank Pennsylvania AA- and Moody’s gives it an Aa3, all the fourth-highest levels. That’s two steps lower than the Moody’s average state rating of Aa1, said Kimberly Lyons, a Moody’s analyst in New York.

Credit analysts pointed to the $2 billion of one-time fixes that legislators used to balance this year’s $29 billion budget. Fewer than 10 states used “one shots” to balance fiscal 2015 budgets, according to Moody’s.

“Six years away from the end of the recession, continuing to have a structurally unbalanced budget, it’s a red flag,” said Eric Kim, a director at Fitch in New York.

The rising tab for public workers complicates the quest for a fiscal fix. Pennsylvania administers two pension plans covering about 700,000 people. The state’s contributions will reach $3.1 billion in fiscal 2019, compared with $424.5 million in 2009, according to a budget presentation.

‘Disturbing Trend’

Pennsylvania made about 52 percent of its actuarially recommended pension payment in Moody’s latest ranking, eclipsing only New Jersey and Virginia. Thirty-four states made at least 90 percent of the recommended contribution.

“We’re on a very disturbing trend line absent any reform in our pension system,” Charles Zogby, the budget secretary, said during a Dec. 3 briefing in Harrisburg, the state capital.

Corbett was unable to persuade the Republican-led legislature to pass pension changes this year. Wolf also faces Republican majorities.

“It’s going to be a challenge to get anything passed,” said Delahunty at Eaton Vance, which oversees $21.9 billion of munis.

Corbett kept residents’ taxes flat, lowered some business levies and cut funding for education and other programs. He failed to push through a sale of the state’s wholesale and retail alcohol operations, which could have raised revenue.

“They had lots of different options, and they could not come to an agreement on what were the right ones to pursue,” said Fitch’s Kim. “The fact they haven’t explored other revenue items has been a challenge for them as well.”

Pennsylvania’s pension liability as a percentage of revenue, at about 130 percent, is ninth-highest among states and is more than double the median at 60 percent, according to Moody’s.

“Pennsylvania is not alone in dealing with pension costs. Pennsylvania is not alone in dealing with revenue volatility,” said Lyons at Moody’s. “What makes Pennsylvania an outlier is that you have a combination of all of these things at the same time.”