NEW YORK - Moody’s Investors Service Wednesday downgraded Philadelphia’s general obligation credit to A2 from A1, affecting $3.85 billion of outstanding GO and parity debt. The outlook is stable.
According to Moody’s, Pennsylvania’s largest city will continue to face budgetary challenges and weak finances in the coming few years.
“Although fiscal 2010 results are favorable, general fund balance remains negative … and we believe the city has little budgetary margin over its five-year plan, which includes significant repayment of deferred pension contributions in 2013 and 2014,” analysts wrote.
Since 2009, the city has cut expenditures, reduced payroll, and implemented property-tax increases and a temporary sales-tax increase to help balance its spending plans. Moody’s believes that while these changes have helped Philadelphia, its “financial flexibility remains relatively weak.”
The city does benefit from a state oversight board, which reviews its annual budgets and five-year spending plan.
Philadelphia plans to sell $268 million of new-money and refunding debt before the end of 2010. The transaction will include about $69 million of taxable Build America Bonds, according to Moody’s.
