Philadelphia School Budget May Spark Exodus, Moody’s Report Says

The proposed budget for Philadelphia’s public schools may cause students to leave for charters, increasing expenses, Moody’s Investors Service said in a report.

The $2.5 billion plan for the year beginning in July calls for the district serving the nation’s fifth-most populous city to fire 1,000 employees unless it receives $216 million to maintain programs, according to the report. The jurisdiction educates about 205,000 students, according to a board presentation.

“A further deterioration in education services will likely result in additional student flight to charter schools and other alternatives, which could further increase the district’s expense for educational alternatives,” Dan Seymour, a New York-based Moody’s analyst, said in the report dated today.

Charter students strain the system’s finances because Pennsylvania law requires it to cover the expenditures. Per-pupil costs have risen 70 percent since 2004, Seymour said. More than 30 percent of students attend charters, and about 31 percent of next year’s budget is devoted to that cost and for transportation.

Charter schools, while publicly funded, operate independently, hiring their own teachers and developing academic programs.

Sales-Tax Take

If city council commits an additional percentage point of sales-tax proceeds to schools, that would only provide $120 million, according to the report. The state legislature has authorized this step, which city council has yet to adopt.

Moody’s ranks the district Ba2, the second-highest junk grade.

Tax-exempt bonds maturing in September 2038 traded May 1 at an average yield of 3.5 percent, or 2.3 percentage points above benchmark debt, data compiled by Bloomberg show. That compares with an average of 2.9 percentage points since January.

The securities were issued under a Pennsylvania program that diverts state aid to bondholders and are rated Aa3, the fourth-highest grade.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Tannenbaum, Stacie Sherman

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