Pittsburgh gets negative outlook from Fitch, urges federal aid
Pittsburgh Mayor Bill Peduto, whose city on Wednesday received a negative outlook from Fitch Ratings, warned of significant cuts to next year's budget if it does not receive adequate federal rescue aid.
"We are at a critical juncture," Peduto told reporters on a conference call after U.S. Senate Republicans released a $1 trillion draft coronavirus relief proposal, the so-called HEALS Act, that omitted direct aid to cities. "As we look at a future of economic recovery, there will be no recovery if our cities are left to die.”
Fitch lowered its outlook on Pennsylvania’s second-largest city to negative from positive on the cusp of next week’s planned issuance. It affirmed the city's general obligation bonds at AA-minus.
The move reflects variables associated with the COVID-19 related economic downturn, according to Fitch. The rating agency on Feb. 25, before the pandemic escalated, had boosted its outlook to positive from stable.
“The prior positive outlook reflected the improved economic conditions and financial resilience prior to the pandemic, which are now uncertain,” Fitch said in a statement.
Affected are $152 million of Series 2020A unlimited tax general obligation refunding bonds; an $80.5 million Series 2020B GO refunding; $328 million of outstanding bonds; and Pittsburgh's issuer default rating.
S&P Global Ratings Tuesday affirmed Pittsburgh at AA-minus and stable.
The Series A bonds, according to Fitch, will refinance all or a portion of outstanding principal on Series 2018 bonds, while the Series B bond will refinance series 2012A, 2012B and series of 2014.
Next week's primary calendar, according to Refinitiv, includes a $31.9 million Pittsburgh Series A refunding and $121 million of taxable GOs, with PNC Capital Markets lead managing both.
The GO and issuer default ratings “incorporate the city’s very strong operating performance given its recent buildup of a high reserve cushion and significant independent legal ability to increase revenues,” Fitch said.
Offsetting factors include retiree benefit and other pressures that leave the city with “just adequate ability” to control spending and a pace of spending growth that will probably require ongoing budget management.
"The negative outlook is not surprising, and is exactly why Mayor Peduto and other local officials from around the country are calling on Congress to provide relief to struggling municipalities on the front lines of the pandemic," said Peduto's communications director, Tim McNulty. "Residents need our services more than ever but cities are running out of resources to pay for them."
According to Peduto, park and amusement tax receipts have plummeted to almost zero. He has pegged revenue losses at 17% to 20%, or more than $100 million.
Pittsburgh, with a 300,000 population, was under state oversight for 14 years before exiting in 2018. State workout programs, Fitch said, provided strong oversight and gave the city significant authority over expense control.
“The city has since formalized many of the fiscal policies that were in place during the oversight period, and Fitch expects the city to continue its current strong financial management,” the rating agency said.
Pittsburgh, with a six-year surplus in its operating budget, expects to use some of its reserves, though Fitch believes the city can rebuild them and continue to reduce its net pension obligations with supplemental contributions over time.
“We do have the ability to address this year’s budget and feel we will be able to meet payroll by the end of the year without having to furlough workers,” Peduto said. In the next budget, though, the mayor said prospects of police, fire and ambulance cuts loom.
Pittsburgh rebounded from a manufacturing decline through growth in “eds and meds,” building its recent tax base around growth in education, healthcare, financial services and technology. It is home to the University of Pittsburgh and Carnegie Mellon University, which are among the largest regional employers.
Pittsburgh reported $550 million in private investment in 2018 primarily for autonomous vehicles and robotics firms. This comes after a reported record $688 million of private investment for the city in 2017, including investments from Google, Uber ATC, Amazon and Apple.