A map of Pittsburgh, Pennsylvania with its neighborhoods labeled. For use primarily in the list of Pittsburgh neighborhoods. (Photo credit: Wikipedia)
The credit rating agency Standard & Poor’s has bumped up Pittsburgh’s credit rating three notches to A, a move that could save the city money on future borrowing by improving the city’s credit profile.
The agency cited a number of factors in moving the city’s credit rating up from BBB. First, it said the city’s resilient economy and “deep and diverse economic base” which allowed the city to fare relatively well during the economic downturn. It also cited the presence of two state-appointed oversight boards that have kept close tabs on the city’s budget since the state of Pennsylvania declared it financially distressed nearly a decade ago.
S&P analyst Andrew Teras also cited the city’s debt management, increase in reserves and ability to manage long-term liabilities, like pensions.
According to Moody’s, the new rating reflects the city’s approximately $120.3 million debt as well as “four consecutive operating deficits which have largely been driven by aggressive budgeting of city revenues and reserve appropriations to balance the budget.”
Investors use credit ratings such as Moody’s to determine the risk of a municipality’s defaulting on debt payments. A lower rating can force municipalities to pay higher interest rates to compensate for the risk, increasing the cost of borrowing.
Allentown’s weak socioeconomic profile — a sizable and mature urban tax base with below-average “socioeconomic indices” — and limited financial flexibility are challenges to the city, according to Moody’s.
It is what happened in the interim that the county hoped to avoid.
In the past 12 weeks, the county has borrowed $21 million to clear its books of unfunded debt, including repayment of last year’s tax anticipation loan; increased property taxes 38 percent to balance its 2012 budget; and completed the overdue audit of its 2010 finances.
But all of that financial housekeeping came too late for Moody’s, which quietly withdrew its rating on the county’s $202.7 million in outstanding general obligation bonds two weeks ago after downgrading the debt to the equivalent of junk status back in September.
Due to the charges against Jerry Sandusky, a major credit agency is reviewing Penn State’s Aa1 bond rating for a possible downgrade. Moody’s Investors Service stated on Friday they have put Penn State’s bond rating under review due to the damage of the university’s reputation by the child sexual abuse scandal.
Moody’s will assess things like lawsuits brought against the university, enrollment decline, loss of donations and any change in the university’s status with the Commonwealth of Pennsylvania.
Needless to say, this action could negatively impact Penn State and the university’s ability to recover from the scandal. Penn State is a major employer in Pennsylvania. According to Wikipedia,”The university is now the largest in Pennsylvania, and in 2003, it was credited with having the second-largest impact on the state economy of any organization, generating an economic effect of over $17 billion on a budget of $2.5 billion.”