Moody’s Offers Negative Outlook on School District Debt

Chronically late state budgets partly to blame.

Photo | It's Our City via Flickr / Creative Commons

Photo | It’s Our City via Flickr / Creative Commons

The Philadelphia School District is more financially stable than it’s been in a while, but there are still plenty of problems.

That’s the assessment from Moody’s, which last week affirmed its negative outlook on the $3.1 billion in outstanding debt.

“We are working to achieve and present a stabilized budget and long term fiscal plan,” Supt. William Hite said in a press release issued today, “and it is important that independent reviewers like Moody’s are recognizing our efforts.”

The investment service gave the district a Ba3 underlying rating and a Ba2 enhanced rating as guidance for investors looking to buy up district debt. Debt obligations with a Ba rating “are judged to be speculative and are subject to substantial credit risk,” Moody’s says in its ratings guide. The underlying rating reflects the district’s credit-worthiness absent state credit support; the enhanced rating includes state credit support and was also negative, because, well, the state hasn’t always been a reliable partner to the district — the “chronically late budgets” out of Harrisburg, it turns out, aren’t a sign of fiscal stability.

The underlying rating recognizes that money from the City of Philadelphia has helped the district stabilize its finances, while recognizing continuing challenges “that the district will continue to face going forward including increasing charter pressures, pensions costs, and the potential loss of various revenue sources in fiscal 2019 making it difficult to maintain structurally balanced budgets in the medium-term.”

How could the district upgrade its financial outlook? Moody’s suggestions: Secure permanent sources of revenue for a balanced budget, halt the migration of students to charter schools, and stabilize the political environment with the “timely” passage of state budgets.

The full report is below: