Philly schools' retain 'junk bond' rating

Citing the likelihood of another impasse over the next state budget, Moody's Investor Services has affirmed its negative credit rating for the Philadelphia School District.

Moody's highlighted the district's recent efforts to stabilize the finances of the city's schools. But the credit opinion released Friday said that the continued "Ba3" rating for the district's debt "reflects the continued uncertainty surrounding" the state budget for the fiscal year that begins July 1 and the potential impact it could have on the district's finances and ability to borrow money.

The "Ba3" rating means that the district's bonds are below investment grade, carry a high risk, and are within "junk bond" territory.

If the district receives new sources of stable funding, its credit rating would improve.

"We are working to achieve and present a stabilized budget and long-term fiscal plan, and it is important that independent reviewers like Moody's are recognizing our efforts," Superintendent William R. Hite Jr. said in a statement Monday.

"Moody's noted that we expect balanced operations through 2017, but also highlighted the same fiscal risks we acknowledged in our proposed five-year plan, namely the short-term challenges presented by an uncertain state budget, and the long-term imbalance between recurring expenditures and revenues."

A downgrade in a credit rating would cause the district to pay more when it borrows money.

Since there was no ratings change, the report from Moody's will not affect the borrowing costs that the district had included in its five-year plan.

The district has a debt of $3.1 billion in outstanding bonds.

The five-year plan projects debt-service payments of $260.5 million in the next fiscal year, growing to $275.2 million four years later.

The nine-month impasse over the state budget ended late last month when Gov. Wolf allowed the Republicans' $30 billion state budget to become law without his signature.

Republican lawmakers have already derided the $33.3 billion state budget Wolf has proposed for 2016-17.

martha.woodall@phillynews.com 215-854-2789 @marwooda