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Philly credit rating cut; S&P cites higher school, pension costs

"The lowered rating reflects our view of the city's likely longer-term credit trajectory as it continues to address the costs associated with managing its pension pressures and School District of Philadelphia costs,"

John McNesby, leader of Philadelphia Fraternal Order of Police Lodge 5. The union has resisted city efforts to cut pension guarantees for newly-hired city workers, who are outnumbered by city retirees
John McNesby, leader of Philadelphia Fraternal Order of Police Lodge 5. The union has resisted city efforts to cut pension guarantees for newly-hired city workers, who are outnumbered by city retireesRead moreDavid Maialetti

S&P Global ratings on Friday said it will cut its credit rating on Philadelphia's general obligation bonds, to A, from A+, a sign of decreased confidence the city will match its planned spending increases to its tax and revenue collection over the next few years. Borrowers with lower credit ratings tend to have to pay extra when they borrow money for public projects.

The lower ratings apply to the city's 2018A (Philadelphia Museum of Art energy-savings program) and 2018B (Benjamin Franklin Parkway improvements) borrowing programs.

S&P also lowered the rating on Philadelphia Authority for Industrial Development debt, sold with help from PNC Bank, to AA/A-1, from the previous AA+/A-1. New PAID debt is rated A. PAID debt backed by TD Bank is rated AA+/A-1+.

"The lowered rating reflects our view of the city's likely longer-term credit trajectory as it continues to address the costs associated with managing its pension pressures and School District of Philadelphia  costs," S&P analyst Lisa Schroeer said in a statement. She noted the city's "strong" fiscal management had made "concrete improvements" in its cash reserves, adding that city officials had limited pension obligations for some newly-hired workers, reducing future payment obligations.

But "the city still faces ongoing financial uncertainty," and will have a tough time meeting its "aggressive" pension funding targets in the next few years, she added. Philadelphia in recent years bet a big chunk of its pension savings on the U.S. stock market, which hit record values over the past few years but has stumbled lately since President Trump promised to increase import taxes.