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.

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.

“Our bank that we’ve done most of our work with over the years, would not give us a definitive answer.”

If shut out of the market, Badams will have to ask the state for an advance — which is a potential trigger for moving into state recovery status.

“So we’re teetering on the verge of insolvency,” he said.

Top republicans and democrats say they hope to pass a budget on time this year and win back the faith of the ratings agencies.

S&P says, at this point, that won’t be good enough. It wants to see specific legislation that marks a major commitment to the program.

Philadelphia School District Chief Financial Officer Uri Monson says that needs to happen in order to ensure that the district can make capital investments in its aging stock of school buildings.

“I would not comment on what S&P chooses to rate. Our hope is that there will be a legislative fix that would insulate the intercept from periods of non-appropriation,” he said in an email. “It would then be up to S&P to evaluate the merits of that fix.”

Below is the full list of districts and community colleges that had been using the “intercept” program.

Aliquippa School DistrictAllegheny Valley School DistrictBelle Vernon Area School DistrictBentworth School DistrictBethlehem Area School DistrictBristol Borough School DistrictCarbon County Area Vocational & Technical SchoolCatasauqua Area School DistrictCharleroi Area School DistrictChester Upland School DistrictClearfield County Career & Tech CenterCoatesville Area School DistrictCommunity College of Beaver CountyCrawford County Career & Tech CenterDallas School DistrictEast Allegheny School DistrictErie City School DistrictFarrell Area School DistrictFrazier School DistrictGreenville Area School DistrictHarrisburg Area Community CollegeHarrisburg School DistrictHazleton Area School DistrictHollidaysburg Area School DistrictHomer Ctr Area School DistrictJim Thorpe Area School DistrictLackawanna County Career Technology CenterLigonier Valley School DistrictMcKeesport Area School DistrictMid-Valley School DistrictMidland Borough School DistrictMonessen School DistrictMonroe County Area Vocational & TechnicalMorrisville Borough School DistrictNorth East School DistrictNorthern Lebanon School DistrictOld Forge School DistrictPanther Valley School DistrictPenn Cambria School DistrictPenn Hills School DistrictPennsylvania State Public School Building AuthorityPhiladelphia School DistrictReading School DistrictRiverside School DistrictScranton School DistrictSharpsville Area School DistrictShenandoah Valley School DistrictSt Clair Area School DistrictSteel Valley School DistrictSto-Rox School DistrictTunkhannock Area School DistrictVenango Technical CenterWest Mifflin Area School DistrictWestmoreland County Community CollegeWilkes-Barre Area Career & Technical CenterWilkinsburg Borough School DistrictWilliamsport Area School DistrictYork City School DistrictYork County School of Tech