While Philadelphia public school teachers and students face staff layoffs, program cancellations and school closings as turnaround expert Thomas Knudsen struggles to patch state subsidy cuts, bondholders who financed past school construction projects and financial investments can pretty much ignore city controller Alan Butkovitz's worry about a 'going concern' audit warning and a debt service default, writes Matt Fabian, research director at Municipal Market Advisors, a municipal bond advisory firm in Connecticut.
That's because, under Pennsylvania law, the State Aid Intercept Program "requires payment of state aid" be diverted to the bonds' "fiscal agent if there is a failure by the district" to set aside money "in time sufficient to make bond payments.
"Although there is a $450 million tax and revenue anticipation note" due June 29 - "exactly during the projected cash crunch - these notes have provisions that require the fiscal agent to request that the Commonwelath and local officials" send state aid directly to fund the bonds, no later than June 1, "should there be a deficiency."
Bondholders first? It's all legal under Local Government Unit Debt Act, Act 1845, section 8125(b).
Sure, if Philly schools go broke, "there may be long-term ramifications for bondholders," Fabian acknowledges -- if "the currnet situation evoke(s) political volatility and/or reactionary state legislation."
But how likely is that, in today's Harrisburg?
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