Moody’s upgrades Pittsburgh’s bond rating outlook
Strong institutions, a stable tax base and long-term recovery plans indicate a brighter future for Pittsburgh’s finances, according to analysts from Moody’s Investors Service.
The ratings agency upgraded Pittsburgh’s bond rating outlook from stable to positive after a visit to the city in late July. After reviewing the latest financial information and touring development sites with Mayor Bill Peduto, Moody’s concluded that the city’s plans are a step toward fixing its finances.
“There’s no question the city faces serious long-term challenges in the form of high debt burdens and high pension and retiree health care liabilities,” said Dan Seymour, Moody’s lead analyst for Pittsburgh. “But the city’s taking substantial strides to addressing those in the long term.”
Pittsburgh this year entered a five-year financial recovery plan under state financial oversight program Act 47. The plan recommended ways to control costs, reduce debt, bring in more tax revenue and increase funding to three pension funds, which have a combined liability of about $1 billion. The funds were about 64 percent funded at the end of 2013. It also recommended issuing bonds to fund capital improvements.
Moody’s and Standard & Poor’s visited Pittsburgh in connection with a plan to issue $50 million in bonds by Aug. 28. Peduto led analysts on a tour of the former arena site in the Hill District, the Strip District Produce Terminal, developments in East Liberty and the Almono brownfield in Hazelwood.
Along with the outlook upgrade, Moody’s affirmed its A1 rating of approximately $530 million in outstanding general obligation debt.
Paul Leger, city finance director, said the upgrade is an indicator Moody’s could raise Pittsburgh’s bond rating within a few years, giving the city favorable borrowing costs in the future. Overall, it’s a sign of recovery in the past 10 years, he said.
“The discipline was imposed from the outside from the beginning, but now we’ve learned to impose it on ourselves,” Leger said.
Seymour said the upgrade reflects positive long-term decisions, such as committing $13 million a year toward pension contributions, and the benefits of economic expansion. Growth at universities and hospitals adds payroll and stabilizes the tax base, he said.
“In Pennsylvania, a number of cities have been under the Act 47 plan for 20 years or more, and none have made the progress Pittsburgh has made,” he said.
Standard & Poor’s ratings agency this week announced it would maintain the city’s A+ bond rating, upgraded during the winter.
Challenges remain in Pittsburgh’s long road to financial recovery. The city has what Moody’s called a “below-average socioeconomic profile,” with a poverty rate of 22.5 percent. The median home value of $88,500 is nearly $100,000 less than the national average, Moody’s wrote. And while property in the city is valued at $17 billion, that does not include nearly 39 percent of properties in the city that are tax-exempt.
Leger said talks are under way with the city’s largest nonprofits to secure a payment-in-lieu of taxes agreement or service agreements.
Brian Jensen, executive director with the Pennsylvania Economy League of Greater Pittsburgh, said while the city faces a $500 million retiree health care liability, the outlook upgrade is a sign of recovery. Ten years ago, it had junk bond status.
Melissa Daniels is a staff writer for Trib Total Media. She can be reached at 412-380-8511 or [email protected].