Philly schools just borrowed nearly $400 million to pay for new schools and other building improvements

The Philadelphia school board on Thursday authorized issuing nearly $400 million in bonds to pay for new school buildings and other capital improvements in city schools.

Officials were able to take advantage of low interest rates — and finances that have significantly improved over the last several years — for the borrowing, which will last the district for two years of building projects.

The financing encompasses $315 million of general obligation bonds and $60 million of “green bonds,” which will pay for energy-efficient projects. The district is paying a 2.7% interest rate, or $203 million over the 25-year life of the bonds. That rate is down from the 3.1% the district paid for its last borrowing, when it issued $530 million worth of bonds in 2019.

Those funds will pay for projects new buildings for T.M. Peirce Elementary in North Philadelphia and Cassidy Elementary in West Philadelphia, both of which are scheduled to open next fall and projected to cost $39 million each, according to district documents.

The funds will also fund energy-efficiency projects, major renovations, and additions at schools across the district, as well as projects like window replacements, new elevators, boilers, and other fixes in the district’s aging buildings — most city schools are 70 or more years old.

In addition to the borrowed money, the district also has at its disposal for such projects part of the $1.2 billion it received from the federal COVID-19 relief program and funds available through a grant from the University of Pennsylvania to fix asbestos and lead-paint issues in city schools.

After a run of significant skepticism of district fiscal management, Moody’s Investors Service upgraded the district’s credit rating to investment status two years ago, the first time the district has notched that kind of approval since 1977.

“That has resulted in significant interest savings over time,” Uri Monson, the district’s chief financial officer, told the board at a special meeting Thursday afternoon. “That means we can spend more in schools and less paying investors.”

The district now spends an average of 8.8% of its annual operating budget on debt service; the board’s goal is to keep such spending under 10% of the total budget. That translates to about $352 million annually over the life of the district’s current five-year financial plan.

Board member Reginald Streater asked Monson how the coming shift in district leadership — Hite announced last week he would depart the school system next August, after 10 years as schools chief — might affect the district’s creditworthiness.

Monson said the district waited to finalize the borrowing until after Hite’s announcement in order to present the bond market with a full picture of its situation. He said the financial practices put into place during the Hite administration should not change with a new leader.

“I think as long as we maintain those,” Monson said, “we retain the certainty of the market.”