June 28 (Bloomberg) -- Pittsburgh, Pennsylvania’s second-most populous city, had its general credit-rating raised three steps to A by Standard & Poor’s, which cited a restored structural balance in operations and rising reserve funds.
The new grade is S&P’s sixth-highest level and matches the city’s score from Fitch Ratings. Moody’s Investors Service puts Pittsburgh at A1, one step higher. S&P had ranked Pittsburgh two steps above junk.
“The city has demonstrated a proven ability to maintain an enhanced credit profile featuring improved financial management and planning, consistently favorable budget performance, and strong reserves and liquidity,” Andrew Teras, an S&P credit analyst in Boston, said in a statement released late yesterday.
Teras said Pittsburgh has favorable long-term prospects because of a deep and diverse economy. Once known as America’s Steel City, Pittsburgh has moved away from its Rustbelt heritage by expanding schools, universities and hospitals to replace mills and foundries. It has also been bolstered by a natural-gas boom in surrounding counties.
The city is a logistical hub for gas drillers, Wells Fargo & Co. economists said last year. Exploration and extraction using hydraulic fracturing, or fracking techniques have unlocked resources contained in shale rock formations around the nation. In May 2004, before the fracking boom, S&P rated Pittsburgh debt BB, two steps below investment grade and the lowest of any major U.S. city.
Teras also credited the Intergovernmental Cooperation Agency, a state oversight board formed in 2004, and the city’s coordinator under Pennsylvania’s Act 47 program, which aids financially distressed municipalities, for strengthening Pittsburgh’s finances.
The state oversight board, which approves the city’s budget and five-year financial plan, said in an April report there’s been “good progress” and the community is no longer at the brink of bankruptcy, where it was in 2003.
Still, Pittsburgh “continues to face many significant financial challenges,” such as debt consuming 19 percent of its budget, and a “dangerously underfunded” pension system, according to the overseer’s report. In addition, it said revelations of hidden police department accounts and credit cards linked to them underscore the need for a financial-management system to prevent abuse.
Mayor Luke Ravenstahl, 33, abruptly ended a re-election campaign in March and said he would leave office by year-end, citing job pressures and a federal corruption probe of the police department. He took office in September 2006. Marissa Doyle, his spokeswoman, didn’t respond to telephone calls and an e-mail seeking comment on the rating upgrade.
A Pittsburgh bond maturing in September 2018 traded yesterday at an average yield of 2.76 percent, 1.07 percentage points over benchmark debt of the same maturity, according to data compiled by Bloomberg.
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