PHILADELPHIA – S&P Global Ratings has improved its outlook for the City of Philadelphia to Positive from Stable, marking the first positive change to the City’s S&P outlook in six years. S&P Global also affirmed the City’s A rating.
In announcing the change, S&P cited the City’s strong economy, improved financial position, and “very strong” management. S&P cited the City’s increased general fund balance, contribution to its rainy-day fund, and steps taken to improve the health of the pension fund.
In assessing the probability of an upgrade to the rating, S&P stated, “Should Philadelphia continue its pension funding discipline, reserve level growth, and preparation for a turn in the economic cycle, we could raise the rating. If revenues stagnate or decline within the outlook horizon, effective management of expenditures and obligation contributions in the face of economic challenges could also lead to an upgrade.” At the same time, however, S&P expressed concerns regarding the City’s financial flexibility should a recession occur, and about the City’s large unfunded pension liability.
“The upgrade in the City’s S&P outlook is indicative of the progress we have made,” said City Treasurer Christian Dunbar. “While we are proud of the progress, we are very focused on preparation for a potential economic downturn. It is important we continue to grow our fund balance and maintain our pension funding discipline to ensure we can protect taxpayers and employees from an unexpected change in the city’s financial condition and maintain the City’s long-term fiscal health.”
The combination of City’s improved financial position and its decision to issue bonds during favorable market conditions, allowed it to achieve historically low interest rates on its last general obligation bond sale in July 2019. The City will look to continue this positive momentum as it enters the market to refund general obligation bonds that were issued in 2013. The refunding is expected to price and close in January 2020.
Since the beginning of Mayor Kenney’s administration, the City of Philadelphia has refunded approximately $940 million in general fund-supported debt, achieving over $88 million in net present value savings, 9.37% of the refunded bonds.