Fitch Ratings upgraded Philadelphia, Pennsylvania’s issuer default rating and outstanding unlimited tax general obligation bonds to A from A-minus.
The rating agency also raised to A from A-minus the Philadelphia Municipal Authority’s bonds, the Philadelphia Authority for Industrial Development bonds, the Philadelphia Redevelopment Authority’s bonds and the Philadelphia Parking Authority’s Series 1999A parking system revenue bonds on Wednesday. The rating outlook is stable.
Fitch said the IDR and bond ratings upgrade reflects the city's materially improved operating performance due to a robust tax revenue rebound and management's proactive budgetary actions.
“The A ratings reflect the city's fundamentally sound economic base including healthy growth in assessed values, broad legal control over key revenue items and a moderate long-term liability burden,” Fitch said. “These strengths are offset by the city's workforce-related expenditure constraints and historically constrained, but improved gap-closing capacity, even throughout the pandemic.”
Mayor Jim Kenney said he was gratified the rating agency noted the improvement in the city's finances.
"We appreciate Fitch recognizing our continued commitment to the city’s long-term financial health," a spokesperson for the mayor told The Bond Buyer.
Philadelphia is the sixth largest city in the United States. Fitch noted its “stable employment base weighted toward higher education, healthcare and professional and business services." The agency noted the 2020 Census population was 1.6 million, up 5% since 2010, and incorporates low-income levels and high poverty rates persist among city residents.
The GOs are backed by the city's full faith and credit and are payable from an ad valorem tax without limitation as to rate or amount.
The obligations of PAID, PMA, PRA, and PPA are payable from annual service fee or lease rental payments by the city under non-cancellable agreements from any lawfully available source, Fitch said. The city's obligation to make payments is absolute and unconditional.
State law and the city charter obligate the city council to appropriate annual payments through final maturity, so Fitch rates these on par with the city's GOs and IDR.
Fitch said reserves have strengthened with the city's prudent management through the pandemic-driven downturn and the subsequent economic and tax revenue recovery.
"Despite anticipated drawdowns through Philadelphia's five-year financial plan, Fitch believes the city will continue its trend of prudent and conservative budget management, preserving strong gap-closing capacity to weather a moderate economic downturn," the rating agency said.
"Long-term liabilities are expected to remain moderate relative to Philadelphia's broad and diverse economic resource base," Fitch said.
Moody's Investors Service rates Philadelphia at A2 with a stable outlook while S&P rates it A-plus with a stable outlook.
