PHILADELPHIA – Fitch Ratings upgraded the City of Philadelphia’s credit ratings to ‘A’ from ‘A-‘ last week and reaffirmed the stable outlook. Credit ratings are a key factor in determining the interest rate the City pays on its infrastructure borrowing and, since the Fitch rating had been the City’s lowest, this change could help lower the City’s borrowing costs.
In announcing the change to the City’s Issuer Default Rating and General Obligation credit ratings, Fitch noted that the bond rating upgrade reflects the City’s materially improved operating performance, proactive budgetary management, and sound economic base. Fitch also noted progress on rebuilding budgetary reserves and focus on improving the health of the City’s pension fund.
“I am proud that we’ve achieved this rating upgrade,” said Mayor Jim Kenney. “It reflects the hard work by many people throughout the government to improve our City’s finances.”
“The Fitch upgrade on our GO credit reflects the City’s continued commitment to the City’s financial health and our resiliency,” said Jacqueline Dunn, City Treasurer. “We’ve worked hard to rebuild reserves, improve the health of the pension fund, and proactively manage our finances through challenging economic times.”
The City’s Fiscal Year 2022 estimated balance is approximately $492.4 million or nine percent of revenues and is almost $200 million more than Fiscal Year 2021’s ending fund balance. While nine percent is below the levels recommended by the Government Finance Officers Association, this improved fund balance provides the City with increased financial resiliency and the ability to better manage cash flow needs. Over the next five years, the City also anticipates adding approximately $165 million to the Budget Stabilization Reserve, with deposits made in four out of five years through Fiscal Year 2027. The City has also made significant progress improving the health of the pension fund over time. In four years, the pension funding ratio improved from 44 percent to 54.9 percent on an actuarial basis, and the City continues its practice of contributing more than state law’s annual required contribution.
The City has been rated in the ‘A’ category by all three rating agencies since 2013, but the upgrade means that the City has its highest combination of ratings in more than four decades. The last Fitch action occurred in 2021 when the outlook was improved to Stable on the existing ‘A-’ rating. Moody’s Investors Service and S&P Global Ratings maintain their ‘A2’ Stable and ‘A’ Stable ratings, respectively.
More information about the City’s ratings is available online.