PHILADELPHIA, PA — On Thursday, Philadelphia reached another milestone in its ongoing effort to improve its fiscal health as the City and the Pennsylvania Intergovernmental Cooperation Authority (PICA) announced the final payment on the original PICA bonds from 1992. This milestone follows the City’s having recently received its highest combination of credit ratings in more than four decades from the three major rating agencies.
“This is an inspiring moment for Philadelphia,” said Mayor Jim Kenney. “As we make this final payment on the bonds from 1992 that helped our city rebuild its financial strength, I am grateful for PICA’s sound leadership and oversight – and proud of this Administration’s partnership in that effort. Our city’s financial health is the best it has been in decades, laying the groundwork for even more growth, opportunity, and prosperity to come.”
PICA Executive Director Harvey Rice said, “Similar to when a family makes its final payment of a home mortgage, the City making its final payment on bonds from 1992 is a major milestone and a testament to leadership and bipartisan cooperation at both the state and city levels. In a time of severe crisis back in 1992, leaders on both sides of the aisle — in Philadelphia and Harrisburg — rose to the challenge and saved Philadelphia from financial ruin. Philadelphia has reaped the benefits of that long ago foresight and courage for over thirty years now. Repayment of these bonds is a shining example of governmental cooperation at its best.”
PICA, the City’s financial oversight body, was created in 1991 when the City was on the brink of financial collapse where lenders refused to allow the City to borrow money at affordable rates, necessary to invest in infrastructure or to meet its immediate cash needs. Before PICA was established, Philadelphia faced a number of severe financial challenges, including recurring budget deficits and serious cash shortages. PICA helped the City regain access to the capital markets through its initial bond issuance, $475 million in June 1992. PICA issued one additional series of bonds before its long-term bonding authority expired in 1994, bringing the total new money issuance on behalf of the City to more than $1 billion. Those funds were crucial to ensuring that the City did not run out of cash and in allowing the City to make crucial investments in its facilities.
PICA has continued to play an essential role in maintaining Philadelphia’s financial stability by monitoring city departments and their spending to ensure the City’s overall yearly financial projections remain reasonable and sound. PICA also reviews and approves the City’s annual Five Year Plan after a thorough examination of all yearly revenue and expenditure projections. PICA’s independent oversight and vigilance provides positive assurance to rating agencies and investors.
PICA also has a “first dollar” claim on the resident portion of the City wage tax in order to pay debt service on the bonds. PICA then returns any remaining tax collected to the City after paying debt service and administrative costs. The state-appointed board was set to expire when the final debt service payment on outstanding bonds was made. Because of PICA’s financial vigilance and on-going constructive oversight of the City’s finances, bipartisan legislation was passed in 2022 to extend PICA’s oversight through at least 2047.
The City’s credit rating has continued to improve over time as the City restored financial balance.
The City now has its highest combination of ratings in more than four decades. The City has been rated in the ‘A’ category by all three rating agencies since 2013. Most recently, Moody’s Investors Service upgraded the City’s rating to ‘A1’ from ‘A2’ and its outlook was changed to positive by S&P Global Ratings. Fitch previously upgraded the City’s rating from ‘A-‘ to ‘A’ in July 2022. The rating agencies cite notable improvement in the City’s fund balance and liquidity, a consistent track record of strong financial management, and PICA’s oversight as reasons for the recent positive rating actions.
The City ended Fiscal Year 2022 with a $779 million audited fund balance, its highest ever. The Fiscal Year 2023 estimated balance is approximately $619 million or 10.5 percent of revenues and the City will also make a $65 million deposit to the rainy-day fund to build reserves. The City has also made significant progress in improving the health of the pension fund. In five years, the pension funding ratio improved from 44 percent to 57.6 percent on an actuarial basis, and the City continues its practice of contributing more than state law’s annual required contribution.
The City expects to submit its FY24-FY28 Five Year Financial Plan to PICA for its review later this month.