Philly schools can't afford to cut more programs, credit agency warns
Credit rating downgrade threatened
The Philadelphia School District has cut all the programs it can afford to cut without driving away -- not just more students -- but also the investors the city depends on to finance school spending, warns Moody's Investors Service analyst Michael D'Arcy in a report to clients today.
"Further program cuts resulting in continued or accelerated student movement from district schools" to charter, Catholic, private or suburban schools will push the credit rating agency to reduce the district's bond rating, driving up future borrowing costs and raising questions about the schools' ability to keep paying bonds, according to the report.
Moody's will cut its Ba2 credit rating for the Philadelphia School District's $3.4 billion debt unless state and city funding officials, the school district's own financial managers, the teachers' union, and parents who are thinking about leaving the public schools all cooperate to end the spiral of overspending and program cuts that have put the system into a downward spiral, according to the report.
"Despite a series of steep spending cuts since 2011," city schools still face lower government funding and falling enrollments as more children leave for charter schools, according to the report. Poor budget planning by past school administrators fed the current mess; continued failure by city and state "to agree on new recurring revenue sources" will push Moody's to cut the bond rating.
Moody's doesn't seem too confident the state-controlled board that runs the schools is up to the job. While recent borrowing and last summer's state budget deal "have provided the district with an ooporutnity to stabilize operations and restore reserves, but the district's ability to achieve these goals is unclear," D'Arcy wrote. Union contract talks need to yield "successful cost containment without impairing the district's abilty to deliver core services."
Moody's expects the school district will close more schools in 2015 and 2016, increasing public "frustration" with the city schools.