HARRISBURG - Downgrades to Pennsylvania's credit rating during the past several years due to higher public pension costs and reliance on one-time revenue sources are a key issue in the current stalemate over the state budget.
Gov. Tom Wolf has said those downgrades ,which make government borrowing more expensive, cost state taxpayers $170 million a year.
Now, state Auditor General Eugene DePasquale has put a spotlight on how eight school districts, including Mid Valley School District in Lackawanna County, have a junk bond rating.
Moody's Investors Service has issued a report saying these districts have been downgraded since March to the junk bond rating category, a Baa rating or lower.
Mid Valley's credit rating was downgraded several notches from A3 negative to Baa3 negative on July 1.
The other districts are McKeesport Area, East Allegheny, West Mifflin Area and Penn Hills, all in Allegheny County; York City School District, Frazier School District in Fayette County and Trinity Area in Washington County,
Moody's attributes the downgrades for the overall group to higher pension costs for school employees and several other factors.
"A fiscal cocktail of rising pension obligations, delayed state reimbursement for capital projects, competition from charter schools, and a failure to raise property taxes will continued to push districts into distress," the Moody's report said.
Moody's said these districts are unlikely to see a fiscal recovery anytime soon since required pension contributions for all school districts will increase while the state owes all Pennsylvania school districts more than $1 billion for capital projects.
DePasquale said the credit downgrades hurt taxpayers in these districts.
"This is troubling news for school districts and residents because when bond ratings are downgraded it drives up the costs when schools need to borrow money to repair or upgrade their facilities," he added.
The auditor general has highlighted the need for revamping the charter school system and identified general areas where savings can be obtained, such as curbing excessive retirement buyouts for school superintendents and better accounting for student enrollment figures and payments for transportation.
"As we find so often in our audits, many school districts face a variety of financial pressures, including tuition payments to charter schools, dwindling real estate taxes and the failure of the Department of Education to follow through in construction reimbursements," DePasquale said .
Wolf's proposal for a 7 percent increase in basic education subsidies and a 10 percent restoration in previous cuts in state aid for charter school reimbursement would help school districts, but faces hurdles in the budget battle, Moody's said.
House Republican lawmakers are pushing a plan to overhaul the school construction reimbursement process and borrow money to pay schools still awaiting state reimbursement for construction projects.
(Robert Swift is Harrisburg bureau chief for Times-Shamrock Communications newspapers. Email email@example.com.)
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