Dozens Of PA School Districts Face Tougher Time Borrowing After Budget Impasse
Dozens of Pennsylvania's most distressed school districts are finding it harder to borrow money in the wake of the state's historically protracted budget impasse.
In December, as lawmakers entered a sixth month without a state budget, S&P Global withdrew its rating of Pennsylvania's "intercept" program, through which the state guarantees loans for school districts that don't have high credit ratings.
Through the program, if a district says it cannot meet its loan obligations, the state promises to pay the lender out of the pot of cash the district is set to receive from the Department of Education.
The promise that the state will "intercept" this payment, makes banks more willing to lend.
But if there's no state budget, there's no pot of cash from which to draw.
"We had recognized a trend of late budgets at the state level which render the program ineffective for large portions of the year," said John Sugden, a senior director at S&P Global. "We saw a lack of commitment to the program and to program oversight."
Now, although the budget finally wrapped up in late March, the rating agency's confidence in state government has not grown.
"At this point, we've told the market and our clients that we don't expect to reinstate the program," said Sugden.
That means the 57 districts and community colleges that had been taking advantage of the program are in a tighter position, and will either be locked out of the market entirely or forced to pay higher interest rates.
These districts include Philadelphia, Reading, Coatesville, Hazelton and Erie — where Superintendent Jay Badams says the system can't get through the summer without short term borrowing.