Pittsburgh plans to come to market next week with a refunding of $70 million in general obligation bonds.
City officials will use proceeds of the $18 million of Series A and $52 million of Series B bonds to refund its 2005A and 2006C bonds for an estimated net present value savings of 5% of refunding principal, or $3.5 million, according to Moody's Investors Service.
Moody's rates the bonds A1 with an outlook that it revised in August to positive from stable. The 306,000-population city has about $580 million of GO debt outstanding.
"The positive outlook reflects the steps the city has taken to reduce its long-term liabilities," said Moody's. "The city's long-term plan seeks to control costs, reduce debt and increase pension funding, all while maintaining operating stability and a healthy fund balance."
In January, Standard & Poor's raised Pittsburgh GOs to A-plus from A, marking the city's 11th upgrade in a decade-long climb from junk status. Fitch Ratings assigns its A rating. S&P and Fitch both have stable outlooks.
Despite the series of upgrades, Pittsburgh Mayor Bill Peduto, who took office in January, reversed the stance of predecessor Luke Ravenstahl and urged state officials to let the city remain in Pennsylvania's distressed-communities program, known commonly as Act 47.
Peduto wanted leverage in municipal labor negotiations and to forge a long-term agreement with nonprofits for payments in lieu of taxes, or PILOT payments.
Public Financial Management Inc. is Pittsburgh's Act 47 coordinator. The advisory firm is working with law firm Eckert Seamans Cherin & Mellott LLC.
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"PFM's plan has noted that the capital program has been constrained for several years," said PFM managing director Dean Kaplan. "The five-year capital update focuses a lot on legacy costs. The biggest revision to the plan is that despite positive moves, the city must commit more to pensions and do some capital spending."
According to PFM's plan, Pittsburgh must also eliminate the operating deficits in the baseline multiyear financial projections while preserving basic services; gradually cut debt; negate the need for cash-flow borrowings; and gradually raise pension-fund contributions.
"For the last 15 years, the city has underinvested in [infrastructure] assets, subsisting on available operating funds," the PFM report said. "This approach was necessary to help the city address the immediate problems in its operating budget, but it is not a viable long-term strategy."
