City’s S&P bond rating improves, finance official says more can be done
Mayor Michael Nutter’s administration has achieved in the midst of a bad economy something that has eluded his predecessors since 1979.
The city’s $1.3 billion general obligation bonds are now rated an “A minus” with a stable outlook by American financial services company Standard & Poor’s. They were previously rated BBB plus improving.
A bond upgrade typically means the city will have to pay less to borrow while it looks to raise capital. Jimmy Lanham, deputy city treasurer, expects the city to price a $350 million issue—$200 million of new capital and $150 million refinancing—in mid-July depending on market conditions.
“The upgrade will mean more police stations, fire stations, and recreation centers,” he said.
Hilary Sutton, associate director of public finance at S&P, credits “Nutter’s strong fiscal management” for the upgrade. She predicts a 2013 fund balance surplus of $178 million, which is over budget.
In a good sign for Philadelphia’s future, the S&P report noted that the current largest age demographic in Philadelphia is 20-34.
“The city has cut costs,” she said. “The administration has curtailed non-essential services, implemented cutbacks, instituted a hiring freeze, and focused on overtime.”
Reducing costs is only half the picture. Sutton commends Nutter for raising revenues. The receipts for sales, business privilege and AVI taxes have been revised upward.
”The long term situation has improved,” Sutton said. “The city has better finances. The general fund was running a deficit less than three years ago. It had a $146 million surplus for fiscal year 2012.”
Sutton cited in her report the proactive steps that Nutter has taken to manage the city’s pension obligations, but notes they could be a cloud on the fiscal horizon.
Rob Dubow, the city’s finance director, was cautiously optimistic about the city’s bond upgrade, the second this year.
“Among the 10 largest cities in the United States, Philadelphia’s A minus rating is one of the lowest, “he said. “There is still work to be done.”
He and the S&P report point to the much maligned AVI as contributing to the city’s upgrade. AVI shows the true market value of the city’s real estate, he said.
“The city’s wealth is now more accurately reflected,” he said. “Previously, artificially depressed values gave an inaccurate picture.”
By the numbers
1.3 billion—Philadelphia General Obligation Bonds outstanding
$5900—debt per capita
$350 million—bond issue to be issued in July
Fiscal 2012 $146 million fund surplus
Fiscal 2013 $178 million predicted fund surplus