KBRA Downgrades Borough of Upland, PA General Obligation Notes to BBB+ from A-; Outlook Stable
21 Dec 2023 | New York
KBRA downgrades the long-term rating to BBB+ from A- for the Borough of Upland, PA's General Obligation Notes. The Outlook is Stable.
The downgrade reflects the Borough of Upland’s (“the Borough’s”) lack of timely financial disclosure, namely audited financial statements for CY 2022, which are now nearly a year late, and, in KBRA’s view, the overall less sophisticated financial management infrastructure underpinning Borough operations. Operating deficits in four of the last five fiscal years, despite considerable federal pandemic stimulus funding, also informed KBRA’s rating action.
The long-term rating incorporates the Borough’s deteriorating liquidity and general fund balance; continued uncertainty surrounding a potential, forthcoming sale of the Crozer Health System and its effects on the Borough’s tax base; and the utilization of a cash basis of accounting, which KBRA views as providing a less comprehensive view of fiscal operations. Somewhat offsetting the aforementioned concerns are the Borough’s well-funded pensions and affordable fixed cost burden.
Key Credit Considerations
The rating was downgraded because of the following key credit considerations:
Credit Positives
- Well-funded pensions and affordable fixed costs burden.
Credit Challenges
- Realization of general fund operating deficits in four of the last five fiscal years resulting in a significant decline in reserves and liquidity.
- Low resident income and wealth levels coupled with high poverty rate when compared to the Commonwealth.
- Dependence of revenue base on earned income taxes.
Rating Sensitivities
For Upgrade
- Reversal of negative operating trends and rebuilding of reserve balances.
- Reduced dependence on volatile earned income tax receipts.
- Adoption and implementation of formal policies for maintenance of general fund reserve levels.
For Downgrade
- Continuing trend of structural imbalance in operations causing further deterioration in reserve balances.
- Impairment of tax base driven by a restructuring or cessation of operations at the Center.
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