Moody’s warns of fiscal instability of Philadelphia schools

Financial instability in Philadelphia schools is dragging down credit rating.

Financial instability in Philadelphia schools is dragging down credit rating.

By Maura Pennington |

PHILADELPHIA — The School District of Philadelphia is facing a credit downgrade and more financial problems unless changes come soon.

The credit report released this week from the rating agency Moody’s Investors Service said the school district must reach an agreement with its various labor unions, stem the decline in student enrollment, improve its budgetary management and get more aid from the city and state.

Having started the year with a $304-million budget deficit, the district won’t be ending it in better shape.

“Finances are likely to remain strained, with operating fund balance projected to be close to zero for fiscal year-end 2014,” the report said.

The report highlights the district’s “historically weak budget management” and short-sightedness in relying on federal stimulus aid that couldn’t last. It says the district’s fiscal problems “have recently intensified” despite three straight years spending cuts.

Moody’s said two of the main factors for credit moving forward are the outcome of labor negotiations and a containment of “the accelerated student movement from district schools to charter schools or other alternatives.”

Contracts with the district’s labor unions expired at the end of the summer. Seeking a savings of $133 million from salary and benefit cuts, the district has yet to receive concessions from the unions, including the Philadelphia Federation of Teachers.

As The Notebook reports, with the school year half over, Bill Gross, the director of the Pennsylvania Bureau of Mediation, was brought into talks at the beginning of this week.

At that time, district spokesman Fernando Gallard said they were looking to settle the issue quickly.

The PFT is not commenting on ongoing mediation, but the labor union previously has offered icy reception to suggestions that they make reductions.

With the adults at a standoff, the next target is the kids.

While Moody’s is correct in noting that the rise in charter school enrollment has had an effect on the district’s finances, this sector of education is less of a drain and more of an opportunity for thousands of families.

The moratorium on charter authorization and recent move by the School Reform Commission to cap charter school enrollment are weak measures to relieve the district of years of fiscal distress, especially when the public schools offer students a chance at academic achievement.

The district has a long-term debt of $3.4 million. Paying that down eats up close to 10 percent of the budget for the district’s population of about 131,000 students and takes a toll on taxpayers across Pennsylvania. State aid provides 56 percent of the district’s revenue, with local tax dollars providing the rest.

Unless the district can turn things around, Moody’s may have to reduce the already-low credit rating of Ba2, the report warned.

Even at the current level, the district has had a hard time finding willing lenders. In September, the city government borrowed $50 million on its own credit card for the district to ensure the schools would open on time.

Contact Maura Pennington at and follow her on Twitter @whatsthefracas.

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