Citing “considerable improvement in the district’s still-strained financial position,” Moody’s Investors Service on Friday upgraded the rating on $3 billion in Philadelphia School District bonds to Ba2, up a notch from Ba3.

Moody’s is one of the big Wall Street credit agencies that advise investors on which borrowers are most likely to pay their bills. Higher ratings tend to attract more investors, and eventually persuade them to lend to the district at lower rates.

Philadelphia School District taxpayers have been paying millions of dollars a year in additional interest on the district’s borrowings to upgrade schools and other capital projects, compared with the costs to wealthy districts such as those on the Main Line or in much of Chester County, or fiscally responsible states like Delaware and Maryland, that enjoy top triple-A ratings.

The better rating “might bring more investors into the fold,” but the rating is still low enough that the city’s borrowing rates aren’t likely to drop much or at all any time soon, said Eric Kazatsky, municipal bond analyst at Bloomberg LP.

District officials cheered what they said was the schools’ first upgrade since 2010. Since Pennsylvania doesn’t let Philadelphians elect a school board with full taxing powers, the district is beholden to City Council and the Republican-controlled legislature. That fiscal uncertainty, plus losses from bad bets on interest rates during the late-2000s financial crisis and managers’ failure to cut central-office expenses as fast as needed when many families left traditional public schools for district-funded charter schools, helped depress the credit rating and boost borrowing costs.

But now, Moody’s analyst Nicolanne Serrano told clients in a report, Philadelphia’s “experienced” school district management, led by Superintendent William R. Hite Jr., has finally “developed a detailed understanding not only of the district’s finances, but also of charter pressures and the complexities of managing a highly dynamic, large, urban school district.” The schools also enjoy a “positive relationship with the City of Philadelphia,” which has boosted school spending, “stabilized charter enrollment (under the Democratic state administration of Gov. Wolf, whose appointees have slowed charter school growth), and [made] a return to investment in district classrooms after years of austerity operations.”

Philadelphia schools enjoy higher credit ratings than they might, thanks to the Pennsylvania School District Fiscal Agent Agreement Intercept Program, which allows the state treasurer (a Democrat, Joe Torsella) to seize school funds and pay them to investors instead of spending the money on schools if district officials are tempted to put operations before financing.

Yet the district still falls short of A-level ratings, given its continued “relatively high debt burden, narrow reserves, substantial fixed costs, continued charter pressure, and its projections for operating deficits in future years.”

Moody’s also gave Philadelphia schools a “positive outlook,” especially if the district regains control over its funding or wins additional government support, because it expects “continued charter stabilization and management’s solid governance over school operations and finances” for the foreseeable future.

District officials had no immediate estimate of how much money city and state taxpayers might save thanks to a slightly higher credit rating.

The district enrolls around 133,000 public-school students and 71,000 charter-school students in a total of 200 schools.

by Joseph N. DiStefano, Staff Writer  @PhillyJoeD |  JoeD@phillynews.com
http://www.philly.com/philly/blogs/inq-phillydeals/wall-street-boosts-philly-school-credit-rating-praises-hite-and-citystate-financials-20170908.html