Continued imbalance drives Allentown's new negative outlook

Allentown, Pennsylvania, received an outlook revision to negative from stable from Moody’s Investors Service, which affirmed the city’s general obligation rating at A3.

“The city's credit profile continues to weaken,” Moody’s said in a statement on Monday. The move affects roughly $80 million of rated GO-backed debt.

Allentown, Pennsylvania, photographed from the east side.

Moody’s cited Allentown’s continued reliance on its utility sale in 2013 to sustain operations “rather than correcting a long-standing, considerable, structural operating imbalance. “

According to Moody’s, its A3 rating “also highlights that while the structural imbalance persists, the city's current reserves, though narrowing, are still in line with similarly-rated cities in the commonwealth.”

In addition, Moody’s said its rating reflects the city's large tax base with below-average wealth indicators and high poverty.

Allentown, whose 120,000 population makes it Pennsylvania’s third-largest city, is the seat of Lehigh County.

“In the absence of a permanent solution to the city's long standing structural imbalance, we expect that its financial position will continue to deteriorate, and that further downward pressure on the rating is likely,” Moody’s added.

S&P Global Ratings on April 6 revised its outlook on Allentown to negative from stable and affirmed its A-plus long-term rating for the city. S&P also dropped Allentown School District by three notches in May, to BBB from A.

"Moody's has affirmed our A3 rating, and we share the concerns raised in the outlook," said Mayor Ray O'Connell. "The 2019 city budget now under development will be proactive in addressing these concerns and will establish a solid fiscal foundation for subsequent years."

Allentown, under former Mayor Ed Pawlowski, launched several economic development initiatives, two of which, considered together, won The Bond Buyer’s Northeast Deal of the Year award in 2013.

The Allentown Neighborhood Improvement Zone Development Authority sold $224.4 million in bonds to finance the construction of a downtown business district centered around the PPL Center, an 8,500-seat arena. To help close a steep unfunded pension liability, Allentown leased its water and sewer system to the quasi-public Lehigh County Authority, which sold $308 million of bonds to finance the transaction.

A federal jury in Allentown on March 1 convicted Pawlowski on 47 of 54 counts that focused on a pay-for-play scheme involving city contracts and other business. Charges included bribery, conspiracy, lying to FBI officials, attempted extortion, mail fraud, wire fraud and honest services fraud.

The U.S. District Court for the District of Eastern Pennsylvania has scheduled a Sept. 5 sentencing. Judge Juan Sánchez is presiding.

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