As the Philadelphia School District prepares to borrow $300 million from investors to cover its next two years' budget deficits, Moody's Investors Service has repeated its "negative outlook" warning for the district's Ba1 bond rating.
The district is already at "junk bond" status, below the level that insurers and other conservative investors tend to buy tax-free city bonds. Further cuts could increase future and variable-rate borrowing costs. The district owes $3 billion on previously-issued bonds.
The agency gave the impending bond issue a higher, investment-grade Aa3 rating, thanks to the state Lease Revenue Intercept Program, which promises to redirect state taxpayer aid to pay investors if the school district looks like it may default.
Moody's analyst Geordie Thompson blamed the city schools' "weak financial position" on "increasing expenditures related to charer schoool growth," to "fixed expenditures related to [government] mandates and personnel costs," City Council's reluctance to allow higher property taxes, a heavy existing debt burden, money-losing interest rate "swaps" that were supposed to protect against rising interest rates but have cost millions as interest rates declined, and Philadelphia's "weak demographic profile and high unemployment