Allentown's credit rating has been cut to A3, from A2, and "the outlook remains negative," threatening future cuts that could drive $120 million in city debt closer to junk bond status and make borrowing more expensive, warns Moody's Investors Service in a report today.
Allentown, the Lehigh Valley center that is Pennsylvania's third-largest city after Philadelphia and Pittsburgh, with around 120,000 people, has been hurt by "aggressive budgeting of city revenues and reserve appropriations," according to the report by Moody's analysts Gordy Thompson and Dan Seymour.
The ex-industrial city has lately been a magnet for low-income workers from New York and other expensive cities drawn to low-wage warehouses run by Amazon.com and other national companies in suburban townships along nearby Interstate highways.
But within the city limits, Allentown "mature" tax base and "below-average" household incomes hurt its debt profile; its "history" of spending relatively more than it brings in from property owners and other taxpayers, combined with declining state aid despite Allentown's rising population, and Pennsylvania's usual dependence on property taxes in a city that has lost its old factory and retail base, will make it tough "to stabilize its financial operations and begin to replenish" reserves, according to the report.
The city joins Harrisburg, Scranton, Wilkes-Barre and other cities whose weak private tax bases, large proportion of hospitals, schools, government offices and other non-taxpayers, high unemployment and large unpaid pension obligations have provoked credit agencies to downgrades in the past year, despite intervention by state agencies designed to keep city funds flowing to investors even if it means laying off city workers..
Moody's says it's downgraded 4 Pa. municipalities for every 1 it upgraded so far this year, about the same as the national average, though only half as bad as last year's Pa. imbalance.