Kenney's $600 million plan will add to the city's lengthy debt list
Mayor Kenney’s big initiative to fix up the city’s neighborhood parks, playgrounds, recreation centers and libraries comes with a hefty price tag of $600 million. At least $300 million will need to be borrowed through bond sales, adding to the city’s already high debt. But finance experts say that borrowing money is the only way to pay for a big infrastructure plan in a city that has little wiggle room in its budget.
Mayor Kenney's big initiative to fix up the city's neighborhood parks, playgrounds, recreation centers and libraries comes with a hefty price tag of $600 million.
At least $300 million will need to be borrowed through bond sales, adding to the city's already high debt. But finance experts say that borrowing money is the only way to pay for a big infrastructure plan in a city that has little wiggle room in its budget.
"When you have a new administration, you have new priorities," Alan Schankel, a municipal finance strategist at Janney Montgomery Scott, said. He added that it is common for mayors to launch a big bond issuance at the start of their term to fund a major initiative.
City finance director Rob Dubow said the parks and rec bond will be in addition to other city bonds issued for regular capital improvement project. He doesn't see it as a problem long-term.
"I think it's something the rating agencies think we should be investing in," he said.
Moody's credit rating report on Philadelphia warns of its large debt burden.
"The city's debt and pension liabilities are heavy and will remain a drag on its credit profile for the long term," the September report states.
Increasing the debt would go against the city's own debt management policy.
About 22 percent (about $880 million) of the city's general fund payments in 2015 went to pay off long-term debt. The city's goal is that long-term debt, including general obligation bonds, the city's pension fund debt, agreement with the convention center and ongoing payments to the school district, does amount to more than 15 percent of its budget.
"The 15 percent limit reflects the city's desire to reduce the percentage of its budget which is fixed in future years to assist with financial flexibility," the city's policy, which was updated last year, states.
The bond issuance also came as a surprise to City Controller Alan Butkovitz.
"There's a lot of construction needs in the city... I think there's also housing needs and all the schools in the city need to be replaced," Butkovitz said Thursday. "We've been batting that around and I didn't know that the door was open for that kind of consideration right now."
The controller said the city's rec centers are "a wreck," but he didn't know borrowing millions to address the issue was a conversation that would happen so soon.
Mayor John Street used a similar bond issuance when he launched his ambitious Neighborhood Transformation Initiative. The $300 million bond sale financed Street's signature effort to eliminate blight in Philadelphia.
As of last week — 15 years after the issuance of the NTI bonds and two administrations later — the city still had $3 million in unspent NTI money. Taxpayers currently are on the hook to repay the NTI bonds through 2031.
The Nutter administration started a big bond project in his second term to build a new police headquarter in West Philadelphia. City Council authorized in 2014 that the city borrow as much as $250 million to convert the vacant Provident Mutual Life Insurance Co. building at 46th and Market Streets into a modern police hub. The city issued a $65 million bond that year.
Like Kenney's plan, Nutter also wanted the money for the police headquarters to be issued in phases. On Thursday, Dubow said that plan was still moving forward.
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