The Pennsylvania School Reform Commission's cancellation of the Philadelphia School District's contract with its teachers and the commission's requirement that the teachers pay 5%, 10% or 13% of their healthcare premiums is a credit positive for the district, Moody's Investors Service said.
The commission cancelled the contract Monday.
The district has filed a motion in state court for a declaratory judgment to affirm the commission's authority to cancel the contract, said Moody's analyst Dan Seymour.
The change to the contract would save the district up to $50 million a year, about 2% of its budget.
Seymour said the new teacher contribution levels for healthcare would be a bigger financial aid to the district than the recently passed cigarette tax. While the latter is expected to generate up to $80 million a year, this figure may be optimistic. Also the new healthcare contributions would continue indefinitely and keep pace with any future increases in healthcare costs. By contrast, the cigarette tax increase has been approved for five years and Seymour expects cigarette consumption to go down by 3% to 4% annually.
Seymour said it was likely there would be a legal challenge to the commission's actions.
The Philadelphia School District's bonds have an underlying rating of Ba3 and an enhanced rating of A1 from Moody's and an underlying rating of BB-plus and an enhanced rating of A-plus from Fitch Ratings. Standard & Poor's does not have an underlying rating of the bonds but has an enhanced rating on them of A-plus.
