Moody's Investors Service has cut the credit ratings of the Upper Darby public school system, the largest in Philadelphia's western suburbs, and of Washington Township, the most-populous municipality in Gloucester County, N.J., citing weak revenues, and rising expenses.
Moody's dropped Upper Darby School District's $38 million in general-obligation debt to Aa3, from Aa2, as the township prepares to sell $4.425 million in new debt. (Corrected)
Moody's analyst Michael D'Arcy cited "operating deficits in fiscal 2012 and 2013 that are likely to narrow reserves to weak levels," a wave of tax appeals by homeowners and business owners who say their property taxes should decline along with Upper Darby's fading property values, and a lack of new development or new taxpayers to help cover expenses from "rising enrollments" at township schools, which currently enroll over 12,000. The schools face "considerable near-term capital needs" for the aging township school buildings.
The rating might be lower, except for a provision in Pennsylvania law that allows the state to seize school funds and give the money to investors, if the local school board tries to divert bond payments to pay for school programs.
Moody's also cut the credit rating of suburban Washington Township, home to 49,000 people, to Aa3, from Aa2, as the township prepares to sell nearly $9 million in general obligation bonds to refinance roadwork and other capital projects. Township debt affected by the lower rating, which implies a slightly greater likelihood the bonds won't get paid, totals around $24 million.
In Washington Township's case, Moody's analyst Dan Seymour cited below-average and "thin" cash reserves, but also noted the township remains relatively wealthy, compared to its neighbors, and could afford more taxes if township officials can't or won't cut services and spending.
Moody's also said it may downgrade the Warwick Township Water & Sewer Authority in Chester County, currently rated Aa3, as it prepares to sell $7.1 million in water and sewer revenue bonds, citing a drop in revenues compared to the system's debt load.
Moody's is also weighing a downgrade to $91 million in Aa2-rated debt from the Methacton School District in Montgomery County, citing an attempt by the district's largest taxpayer, the Shannondell senior citizens' development, to pay less money to support area schools, as a result of its falling property value.
The credit rating agency reaffirmed the top-level Aaa credit rating of Upper Merion Township (King of Prussia); and also reaffirmed its A2 rating for East Brandywine Township in Chester County, a "wealthy" community whose "weak financial position" is improving as it refinances old debt.