Moody’s Upgrades School District’s Bond Rating to First Investment Grade in Decades, Baa3
District’s credit outlook also set to “stable”
PHILADELPHIA – Moody’s Investor Services upgraded the School District of Philadelphia’s underlying bond rating by two notches to Baa3. This is the first time Moody’s has assigned an Investment Grade rating for the School District since 1977. Moody’s also set the School District’s outlook to “Stable.”
The Moody’s press release noted that the upgrade reflected improved City finances, new revenues and strong District management.
“Over the past few years, the District has been steadily working to ensure our schools across the city are equipped with the resources they need to be successful while maintaining fiscal stability,” said Dr. William R. Hite, Superintendent. “As a result, our schools and students can rely on continued investments without the uncertainty of sudden cuts in services. Today’s news further validates this approach, which is also evidenced by our continuing academic achievements.”
The Moody’s Credit Report specifically noted, “Philadelphia School District’s credit position continues to improve, marked by three consecutive years of operating surpluses and a commitment of permanent tax revenues from the city of Philadelphia (A2 stable) that largely eliminates the District’s previously anticipated deficits in the near term. The District’s governance is now more closely tied to that of the city given the return to local control, and we anticipate a better alignment of city and School District interests as a result.”
The Moody’s Report highlighted challenges from narrow reserves and a high charter enrollment, but noted that “These challenges are currently met by a very strong management team, which has developed a detailed understanding not only of the District’s finances but also the ongoing operational complexities of managing a highly dynamic, large, urban school district.”
School District Chief Financial Officer Uri Monson noted multiple positive impacts from Moody’s announcement.
“For our stakeholders, including city and state officials, and taxpayers, this report provides evidence that we continue to manage our public resources in an efficient and effective manner while increasing investments in our schools,” said Monson. “In the bond market, investment grade bonds are open to a much larger number of investors, which should decrease our borrowing rates for short and long-term debt going forward. The result will ultimately be millions of dollars in interest savings which can be reinvested in our schools.”
While continued improvement in liquidity could result in future upgrades, the Report did warn of factors that could lead to a downgrade, including “structurally imbalanced operations…further expansion of charters…any change in the city’s commitment to and support of the District.”
“This unprecedented two-notch upgrade reflects the collaboration of stakeholders across this city,” said Dr. Hite. “We look forward to continuing to work with our partners to ensure that all students, regardless of where they live, have access to a quality education.”