If Philadelphia continues to spend more than it is collecting in revenues, it could be at risk for a credit downgrade, according to a new credit report by Moody's Investor Services.
The credit agency affirmed Philadelphia's current A2 rating (a high-medium grade) on its $1.5 billion in outstanding debt. Yet, Moody's revised Philadelphia's outlook from "stable" to "negative."
"The negative outlook reflects the city's inability to achieve structural balance resulting in a continued weakening of reserve levels," the report states. "While the city conservatively budgets and revenues have been on an upward trend, expenditures continue to outpace revenue growth. As a result, additional reserve declines are projected through fiscal 2018, ending with a General Fund balance of just over 1% of revenues, well below that of like-rated peers."
The city's reserve levels, also called fund balance, refers to the money leftover at the end of the year.
The city's new five-year plan show the fund balance going to a low $57.8 million in 2019. By 2021, the fund balance is expected to grow to $107.2 million, still less than half than what the recommended levels.
Moody's report warns that further dipping into what is supposed to be the city's rainy day fund could worsen the city's financial standing.
"Going forward, any additional declines in reserves beyond current projections, will result in negative credit pressure," the report states. The lower the balance, the more expensive it is to borrow money.
City Council is holding a hearing Wednesday to discuss the city's "financial health." It is expected that the city's fund balance will be discussed at Wednesday's hearing.
The Kenney administration responded to Moody's outlook Wednesday:
"This report reflects what the administration stated publicly at the beginning of this year's budget process in March. Accordingly, we crafted a five year plan that will grow the fund balance and ensure a strong fiscal future for the City. It's important to also note that this five year plan is one of the most realistic in recent memory, as it accounts for increased labor, benefit and pension costs," Mike Dunn, a city spokesman, said.
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