Moody's Investors Service on Friday downgraded three struggling Pennsylvania school districts and withdrew their enhanced ratings based on the commonwealth's pre-default intercept programs.

Moody's lowered the pre-default enhanced ratings of Chester Upland to Ba2 from Baa1, Duquesne City to Ba2 from Baa1, and Steelton Highspire to B1 from Baa1 and assigned a negative outlook. Moody's had placed the three on review for downgrade in late December.

It also withdrew their enhanced ratings, reflecting its revised approach to rating Pennsylvania's pre-default enhancement programs in light of the state's continued budget impasse. Gov. Tom Wolf proposed a $32 billion budget for fiscal 2017, even as the 2016 budget is still mired in a dispute between the governor and the legislature. Wolf on Dec. 29 signed three-fourths of a $30 billion fiscal 2016 plan, freeing up funds for school districts and social service agencies while holding out for increased basic education aid through line-item vetoes.

The downgrades reflect credit quality in the districts as well as an additional uplift obtained from the pre-default enhancement program, the rating agency said in a statement.

"All pre-default enhancements are now rated under the bottom-up approach  because without a state budget, the probability of a school district default is determined largely by the default risk of that district," Moody's said.

Under three intercept programs, the commonwealth can intercept aid to teetering districts and pay debt service directly to the paying agent.

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