Fitch downgrades School District's underlying bond rating

The Philadelphia School District's budget crisis isn't just pinching students and teachers. It's also affecting the school system's bond rating.

Fitch Ratings this week downgraded the district's underlying bond rating to BB-minus. The district's rating outlook remains negative, Fitch analysts said in a report issued Tuesday.

Fitch cited the "continued deterioration of the district's already tenuous financial position" in dropping the district's underlying bond rating to "moderately weak."

Though an independent agency's sounding such an ominous tone is not good news, the district's chief financial officer, Matthew Stanski, said Wednesday the move had "minimal impact."

Borrowing costs should not increase, and the district's general obligation and capital bonds will keep their A-plus rating - only because of a program that pays the debt directly from state aid. The district has no plans to issue bonds without the protection of the Pennsylvania School Credit Enhancement Direct-Pay Intercept Program, commonly called "Intercept."

Stanski has repeatedly sounded warnings about the district's precarious fiscal position.

Fitch echoed some of those themes - namely, noting that the district has no ability to raise its own revenue - and sounded others.

"The district's plans to achieve structural balance rely heavily on its continued ability to achieve dramatic expenditures savings, particularly gaining significant negotiated concessions from the teachers' union. Fitch believes the level of cooperation needed to fully realize these plans will likely not be forthcoming, resulting in continued negative operations and increased accumulated deficits," the report read.

Fitch also cited rapid charter school growth, noted that further growth is expected, "increasing the challenges of the district's financial environment." Since 2010, the number of city children enrolled in charters has nearly doubled.

Philadelphia's public schools "are facing a number of challenges, and there's no solution immediately in sight," Eric Friedman, a Fitch analyst, said.

The district on Wednesday announced it was, for the first time since 2007, accepting applications for new charter schools.

In fiscal 2014, the district closed 24 schools and laid off 3,800 employees (nearly 1,900 of whom were rehired) but still ended with a deficit - made worse, Fitch said, by increases in charter school payments and the district's reaping less than budgeted from building sales.

Meanwhile, state Auditor General Eugene DePasquale issued a statement expressing concern.

"Nearly every district in the state is struggling right now," he said. "What we need to focus on is how we can help students succeed even when their school district might be struggling."