As the Philadelphia School District prepares to borrow $300 million from investors to cover its next two years of budget deficits, Moody's Investors Service has threatened to cut the district bond rating below the current Ba1 level, which is already "junk bond" status. That's below the level at which insurers and other conservative investors tend to buy tax-free city bonds. The district owes $3 billion on previously issued bonds.
The agency gave the planned new bonds a higher Aa3 rating, thanks to the state Lease Revenue Intercept Program, which promises to redirect state taxpayer aid to pay investors, instead of school expenses, if the district looks like it may default.
Moody's analyst Geordie Thompson blamed the city schools' "weak financial position [on] increasing expenditures related to charter school growth."
He said also to blame were: Fixed spending related to government mandates and personnel costs, City Council's reluctance to boost property taxes, high current debt, money-losing interest-rate "swaps," which were supposed to protect against rising interest rates but have cost millions as interest rates fell, and high unemployment.