Wall Street bond-rating firms laud city school district’s finances
Wall Street is bullish on city schools, despite a goring of the district’s finances by a local task force.
Moody’s Investors Service and Standard & Poor’s — two of three major debt-rating services — give the district “A1” and “A” bond ratings, respectively.
In sharp contrast to the scathing criticism of the Mayor’s Commission on Public Education, the two Wall Street firms praised the district’s financial management and reserve levels.
“For the Pittsburgh School District, we were impressed with the record of strong financial operations and solid financial reserves that were built up over the years,” Jeffrey Panger, director of public finance for Standard & Poor’s, said Wednesday.
Moody’s agrees with the assessment.
“District financial management has been strong for several years, leading to consistent surplus operations,” Moody’s wrote.
The school district released the bond ratings yesterday — the same day it held a $39.3 million bond sale to help pay for construction of the High School for the Creative and Performing Arts, Downtown; an elementary school in Homewood; renovations of Brookline and Mifflin elementary schools; and an addition to Sunnyside Elementary School.
The district’s reserves have been the target of criticism by the mayor’s commission. The 37-member panel was set up last year after three local foundations suspended nearly $4 million in contributions to the district because of bickering between board members and Superintendent John Thompson.
“The district has accumulated a fund balance of more than $82 million — more than twice as much as experts believe is necessary,” according to the mayor’s commission report.
The bond market views the district’s surplus as prudent, given the lack of agreement in Harrisburg on state money for schools, said Robert P. Strauss, a professor of economics and public policy at Carnegie Mellon University.
“The commission didn’t notice, but everybody else noticed,” Strauss said.
The commission calls for dipping into the reserves to give residents a 2-mill tax cut ($2 on each $1,000 of assessed taxable property value) and to create a special fund to support student achievement.
“The committee was not saying it’s bad that they have adequate resources,” said Maxwell King, president of the Heinz Endowments, one of the three foundations that pulled its contributions to city schools. “We’re saying: ‘How can we use these resources more effectively for student achievement?’ ”
King served on the commission’s school financing and financial-management committee.
Standard & Poor’s Panger said dipping into reserves to cut taxes could reduce the district’s credit rating, making it more expensive to borrow.
“That could cause a structural mismatch and be a cause of concern,” Panger said.
For the first time, Standard & Poor’s has evaluated the district on its own credit merits. Previous ratings were based on a state program.
The Wall Street ratings and evaluations please district officials.
“That contributed to the fact we got good rates (yesterday) on the bond issue,” said Richard Fellers, the district’s chief operations officer.
The district will pay 4.15 percent on the bonds.
The credit-rating agencies also praised the strength and diversity of Pittsburgh’s economy — especially compared to other big cities in the Northeast — and manageable building needs despite the district’s older facilities.
The district spent $55.1 million on debt service last year. It has $362 million in outstanding debt.
The agencies consider the district’s debt burden high but manageable. Other areas of concern are enrollment declines, labor contracts that are nearing expiration and the city’s dismal finances.
Standard & Poor’s noted that the district picked up the $3.5 million annual cost of crossing guards from the city and questioned what other costs the district might incur because of Pittsburgh’s financial problems. Pittsburgh is facing a projected $40 million budget deficit, and Mayor Tom Murphy last month announced the layoffs of 731 city employees.
Wall Street considers the city a drag on the school district, but Murphy’s commission recommends that the mayor appoint school board members, who now are elected from nine districts. The panel also says the city should control the school district’s budget, including the setting of tax rates.
Two mutual areas of concern by the Wall Street rating agencies and by the mayor’s commission are squabbling among school district leaders and “over-capacity.” The district’s 35,147 students attend schools that could serve 50,581.
“That’s factored into the rating,” Panger said. “Whether the board and management work cohesively well together is an issue.”