Friday, July 25, 2014
Inquirer Daily News

Charter, pension squeeze threatens Phila school credit rating

'Negative outlook' for city schools' Moody rating, which is already junk

Charter, pension squeeze threatens Phila school credit rating

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

Joseph N. DiStefano
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PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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