Standard & Poor's increases Pittsburgh's credit rating to A

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Among the superlatives the city's collected -- the most livable, the most Super Bowl titles -- there's one that it'd soon like to forget.

In October 2003, the credit rating agency Standard & Poor's downgraded the city's rating to junk bond status, giving it the worst credit rating of any major American city.

But after years of incremental gains, S&P upgraded the rating for the third time in a decade. Friday, it announced it had boosted the city's credit rating from BBB to A. It listed the city's outlook as stable, which means analysts believe the city's rating is unlikely to change anytime soon -- for the better, or for the worse.

But city officials celebrated the news, because it could lead to cost savings and because it validated their longtime efforts to improve and stabilize the city's finances.

"In 2006, we inherited a city under financial distress with a low bond rating," Mayor Luke Ravenstahl said in a statement emailed from a spokeswoman. "By focusing on economic development, debt reduction, pension reform, labor peace and prudent fiscal management, we have made great strides in improving Pittsburgh's financial health. Through hard work and dedication, and the contributions of so many, we've become a model city for success in municipal finance."

The city's last upgrade from S&P was in 2006, when the city went from BBB- to BBB. This time, the city's credit rating increased three notches. While S&P analyst Andrew Teras described the jump as "unusual," he pointed out that the rating was "still slightly below average for municipal credit in general."

The city's other credit ratings -- from Moody's and Fitch -- also have seen boosts over the past decade.

Much like a consumer credit rating, an improved credit rating for the city means it will cost far less for it to borrow money. It will be able to, for example, forgo bond insurance and get better rates on its bonds. In January 2012, when the city issued an $80 million bond, it first got an upgrade on its other two credit ratings, which led to a savings of about $5 million or $6 million, said city finance director Scott Kunka.

In its report, S&P cited a number of factors. Analysts wrote that the city's "deep and diverse economic base" proved resilient during the economic downturn. And on Grant Street, the city made immense gains in controlling its debt with the help of a debt management policy written by Councilman Bill Peduto.

But analysts also credited the state overseers with righting the city's financial ship. In 2004, the city, on the brink of bankruptcy, was declared financially distressed under Act 47, a state law that then mandated the appointment of state overseers.

Soon after, the state appointed the Intergovernmental Cooperation Authority, a board that controls the city's gaming revenue and also must approve the city's budget. Both bodies have mandated long-term financial planning, including a recovery plan and a five-year plan that must be updated annually.

"The effectiveness of the five-year financial forecast has improved since it was initially introduced and provides the city with greater discipline when budgeting," they wrote.

Analysts cited Act 47 as one of the factors that allowed the city to control its personnel costs because the law limits the collective bargaining power of unions.

Late last year, the state overseers recommended the city be released from Act 47, a move supported by Mr. Ravenstahl and much of city council. But Mr. Peduto, who prevailed in the Democratic primary for mayor, is rallying to keep the city under Act 47 because he believes it hasn't made enough progress yet from the dark days of 2003. The Department of Community and Economic Development, which will make the decision on the city's status, said the upgrade is one of several things that are being weighed.

Mr. Kunka said he believes the upgrade is a strong argument that the city is ready to leave state oversight. The two go "hand-in-hand."

"The helping hand that Act 47 has given us over the years has been able to ensure to the rating agencies the progress we've made," he said. "Obviously they've played a major role."

But Mr. Peduto believes the news says exactly the opposite and bolsters his view that the city -- which made grand strides under Act 47 restrictions -- should remain there.

The picture painted by analysts wasn't entirely rosy, though. In their seven-page report, they wrote that while the city has made progress in controlling its debt by limiting its borrowing, debt payments accounted for nearly a fifth of the city's expenditures in 2013, a level S&P "considers high." Throw in other fixed costs -- like pension payments and payments for a retirement health care plan -- and those account for about 30 percent of the budget.

According to the city's debt management plan, Pittsburgh will see a steep drop-off in debt payment in 2018. Until then, analysts wrote, it is unlikely the city would see another upgrade.

Still, Mr. Kunka said the upgrade will have a tremendous impact on the city finances -- some harder to measure than others. "It also has an esoteric effect as far as the confidence of the business community ... as far as the stability of the city."

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Moriah Balingit: mbalingit@post-gazette.com, 412-263-2533 and on Twitter: @MoriahBee. First Published June 28, 2013 10:00 AM


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