Philadelphia mayor touts city's financial momentum
PHILADELPHIA — Strong investor demand for Philadelphia bonds underscores the city’s fiscal strides, according to Mayor Jim Kenney.
A $293.4 million general obligation bond offering Aug. 1 was more than 10 times oversubscribed and netted Philadelphia $15.9 million in interest savings compared to its previous GO deal. Two weeks later the city completed a $250.7 million Water & Wastewater Revenue borrowing for the Philadelphia Water Department where total retail and institutional orders exceeding $600 million for $16 million of savings.
“We’ve had several successful transactions this past year that showcased the long-term positive outlook investors and our residents have for Philadelphia,” Kenney said during luncheon remarks at The Bond Buyer’s annual Mid-Atlantic Municipal Finance conference Thursday. “Our administration is committed to creating a stronger city that works for all Philadelphians, and safeguards our fiscal health for future generations.”
Prior to the August GO sale, rating agencies credited Philadelphia with having strong financial management leading to improved reserve levels and progress combating an underfunded pension system. Philadelphia’s GO debt is rated A-minus by Fitch Ratings, A by S&P Global Ratings and A2 by Moody’s Investors Service. Fitch assigns a positive credit outlook while Moody’s and S&P have the city at stable.
Kenney, who is up for reelection on Nov. 5 against Republican defense attorney Billy Ciancaglini, has focused on tackling the city’s pension’s burden since assuming office in 2016 when the system was only 44% funded with $6 billion of liabilities. The system was 46.8% funded earlier this year with $4.4 billion in liabilities and the city has set goals to have it at a 62.7% funding level by the 2024, at 80% by 2029 and 100% in 2033.
A Pew Charitable Trusts stress test analysis of Philadelphia’s retirement system released in May said the city is on sustainable path to pay down its long-term pension debt if it continues a policy of increasing employee contributions coupled with funding support from general fund and sales tax revenue. The Pension Board has also reduced the fund’s assumed rate of return to 7.6% from 9% and plans to lower it again to 7.55% in July 2020.
“We have been able to increase the fund’s assets, reduce the growth in its liabilities, strengthen its risk profile and have made our assumptions more conservative and lowered our cost of investing by about 50 percent,” Philadelphia Director of Finance Rob Dubow said during his keynote address at The Bond Buyer conference. “Elected officials, union officials and pension board members were all willing to make sacrifices today to help the future and health of the fund.”
The Kenney administration also highlighted steps it took to bolster reserves through the city’s first contribution to a Budget Stabilization Reserve Fund that was established in 1991. The city deposited $34.2 million into the rainy day fund this year and is planning continued annual contributions for a projected total of $180.8 million by 2024.
Kenney stressed that $1.2 billion investment in the Philadelphia School District over the next five years will pay future dividends in solidifying the school system’s finances along with enhancing student achievement. The cash-strapped district was facing a projected $900 million deficit by 2023 prior to the city implementing a mayoral-appointed Board of Education following nearly two decades of state control.
“We can wait around for Harrisburg to fly in and save us like Superman or Superwoman or Washington to do the same thing and neither one is going to happen,” Kenney said. “We have to fund it.”