Happy days may be over in our 51st state. Joan Gralla of Reuters reports:

Puerto Rico’s credit rating might be cut due to its “deeply underfunded” pension system, Moody’s Investors Service said on Tuesday, in a reminder of one of the biggest threats to state and local finances.

Puerto Rico now is rated A3 by Moody’s; about $28 billion of debt issued by the Commonwealth was affected by the warning from the credit agency.

Puerto Rico’s financial problems are not only deep but long-standing. Moody’s cited years of over-estimating revenues, underestimating expenses and relying on deficit borrowing.

Much of Puerto Rico’s debt is widely held throughout the United States because investors do not have to be residents of the Commonwealth to capture its tax-free returns.

The credit agency estimated Puerto Rico’s unfunded pension liability at $24 billion. The Commonwealth also must repay $42 billion of debt backed by taxes. Adding those two liabilities together produces an amount that is seven times the annual budget, Moody’s said, calling this “a combined burden that will exert significant budgetary pressure for many years to come.”