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WATCHBLOG: Moody’s to Philly: Go ahead, borrow $50M for schools

By   /   August 19, 2013  /   No Comments

By Eric Boehm | PA Independent

HARRISBURG — The city of Philadelphia plans to borrow about $50 million to ensure its schools can open on time, and they’ve been given a thumbs-up by at least one major credit-rating agency.

NO CLASS: Philadelphia may have to postpone the start of the new school year, scheduled for Sept. 9.

NO CLASS: Philadelphia may have to postpone the start of the new school year, scheduled for Sept. 9.

In a report released Monday, Moody’s said the $50 million in borrowing would be “credit positive,” for the Philadelphia School District. The district’s bonds need all the help they can get, since they are essentially rated as junk by Moody’s, one of the three big credit-rating firms.

The report notes that borrowing to fund the school district would be a credit negative for the city if it became part of a pattern — but as long as this is a one-time event there seems to be no real concern.

The city plans to use a portion of a 1-percent city sales tax to repay the loan.

But Moody’s noted “the city’s decision to borrow money for the benefit of the school district for operating purposes is an unusual and significant action.”

What’s so unusual about it?

It’s rare for a municipality, even one as large as Philadelphia, to borrow money for a school district. Usually, if districts or other smaller political entities get into a situation where they are unable to borrow for themselves, the state will step in.

But the state will not give the school district more money until the Corbett administration is satisfied the district is making “fiscal savings and academic reforms.” That includes changes to the collective bargaining agreement between the district and the Philadelphia Federation of Teachers, a union.

The report also points to growth in charter schools in the city. Philadelphia School District made $533 million in payments to charter schools in 2012, up from $126 million in 2008. That’s because more students are leaving the traditional public school system for the city’s charter schools.

For the 2013-14 school year, 30 percent of the city’s students will attend charter schools.

The City of Philadelphia’s bonds are rated A2 with a stable outlook, meaning Moody’s does not expect any changes in the near future. The school district’s bonds are rated Ba2 with a negative outlook.

And Moody’s warns that its issuance of a “credit positive” review does not connote a rating or outlook change. It is indicative of the impact of a distinct event or development as one of many factors.

Eric Boehm is a reporter for PA Independent and can be reached at Eric@PAIndependent.com. Follow @PAIndependent on Twitter for more.


Eric is the national regulatory reporter for Watchdog.org. He lives in St. Paul, Minnesota. His work has appeared in Reason Magazine, National Review Online, The Freeman Magazine, The Philadelphia Inquirer, The Washington Examiner and Fox News. He was once featured in a BuzzFeed list-icle. Follow him on Twitter @EricBoehm87.