Moody's issues warning on School District's bond rating

Posted: May 08, 2014

PHILADELPHIA At a time when the Philadelphia School District's financial condition is already dire, Moody's Investors Service is warning that rising charter costs and uncertain funding could further sink the district's precarious bond rating.

On Monday, while Superintendent William R. Hite Jr. and School Reform Commission Chairman Bill Green were pressing City Council for more money for city schools, Moody's was giving its assessment of the district's finances.

Moody's analysts said the $2.5 billion budget the district released two weeks ago was so grim that it could fuel a student exodus to charter schools, increasing the district's charter costs.

"Rising charter school enrollments have been a drag on the district's finances, as state law mandates that public school districts pay the costs of sending students to charter schools," Moody's said in its "Credit Outlook" report.

The district already spends 31 percent of its budget on charters, which enroll 67,315 students. Moody's analysts said that the district's financial picture could cause that number to grow.

District officials have said the budget they presented for the fiscal year that begins July 1 would imperil the district's ability to provide an adequate education for its 131,500 students. Unless the district receives at least $216 million more, officials said, 1,000 staffers would be laid off, and the average class size would soar to 41 students.

Analysts have not changed the district's bond rating. It remains Ba2 - essentially speculative or junk bond status - but they have a negative outlook on the district's obligations.

If Moody's does downgrades the bonds, the district's borrowing costs would increase. The district already spends 11 percent of its budget on debt service.

"The Moody's analysis accurately reports some of the consequences the School District may face if schools are not adequately funded," district spokesman Fernando Gallard said in an e-mail Tuesday. "The effects of inefficient funding for public education go well beyond the classroom."

The district will spend $700 million on charter payments through June, about $25 million more than budgeted. One reason for the higher bills is that charters have enrolled 1,600 more students than permitted in their operating agreements.

The district currently pays charter schools $8,419 per student, $22,312 for those who receive special-education services.


martha.woodall@phillynews.com215-854-2789

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