SCRANTON, Pa. — Only a few years removed from gloomy economic forecasts, the credit rating agency Standard & Poor’s took a positive outlook in its latest review of Scranton’s creditworthiness.
S&P boosted Scranton’s credit rating to BBB+ — a two-level jump from last year’s score when the agency gave the city its first investment-grade rating since 2011.
However, some lingering issues remain, the agency's report noted. Despite improvements, the city’s underfunded public union pension liabilities remain high, and their contributions make up a “significant portion of the budget.” Retiree benefits are slated to remain “a source of budgetary pressure.”
Municipalities with higher credit ratings can borrow money at cheaper rates than municipalities with poor ratings, the city said in a statement. Better municipal credit ratings also signal to investors that the city is financially stable and a safe bet for business investment.
“Last year’s news that we were investment grade and this year’s leap to BBB+ reflects the financial strength we’re building through processes and policies and a thoughtful, experienced team,” Mayor Paige Gebhardt Cognetti said in a statement.
S&P withdrew Scranton’s credit rating in 2011 and rated it five years later at a BB “junk level,” the city said.
After 30 years, Scranton exited Act 47 distressed status in 2022 and acquired a slightly better BB+ rating. The city’s BBB- rating in 2023 was its first investment-grade rating since 2011.
According to the S&P report, the 2024 BBB+ rating reflected Scranton’s improved liquidity and its ability to balance its budget without plugging holes by using its $68 million in American Rescue Plan Act funds.
“As a result of proactive financial management, the city has controlled expenditure growth while revenue has consistently outperformed the budget,” S&P wrote.
The city also recently settled lawsuits for fractions of their initial claims, which lessened its liability exposure.
That included a lawsuit filed in 2020 by the city’s police union to reinstate cost of living increases in pension payouts retroactive to 2015. In January, a Lackawanna County judge denied the request and sided with the city.
Senior Judge Robert P. Mazzoni wrote in a memorandum on the case that the city’s aggregate pension fund remains actuarily unsound.
The S&P report also noted that the city’s unfunded retiree obligations remain large.
S&P reported that weak investment returns in 2022 lowered the funding ratios in each plan — the firefighter pension plan was 54.5% funded, the police pension plan was 69.2% funded and the non-uniform pension plan was 69.4% funded — but 2023’s stronger market performance should correct that somewhat in the next valuation.
Other post-employment benefits, like health insurance, are funded on a “pay-as-you-go basis” and could likely lead to “escalating costs” because of claims volatility, the report stated. Those benefits are administered under the recently established Other Post-Employment Benefits plan.
The city recently deposited $2 million into a trust designed to offset OPEB liabilities — $157.2 million in total — and the 2024 budget called for an additional $200,000 deposit, S&P said.
“Given the size of these liabilities relative to the rust, we believe costs will remain a source of budgetary pressure,” S&P wrote.
In a statement, the city touted its work to decrease “sizable legacy fixed costs.” Outstanding principal debt dropped from $150 million a few years ago to less than $70 million and the city has no plans to borrow more for the immediate future.
A spokesman also said the city manages its retiree obligations “responsibly through the composite pension trust” and minimized healthcare costs jumps for pensioners “through programmatic changes.”
