Credit rating agency Standard & Poor’s lowered Lackawanna County’s bond rating by one notch, citing concerns that cash-flow pressures and budget strain are likely to continue despite the nearly 33% 2025 tax hike the county’s Democratic majority commissioners approved last year.
But S&P Global Ratings also assessed the county’s outlook as stable, acknowledging the significant steps officials took last year to bring the county budget “closer to structural balance in 2025.” The county’s grant-supported work with financial consultants PFM Group Consulting LLC informed the tax increase and other corrective actions taken last year, with PFM recently issuing in March a longer-range financial management plan rife with recommendations the county is moving to implement.
“Stability also lies in the added support the county is receiving through continued engagement with consultants, which likely will help improve financial monitoring and place focus on areas that need operational improvement,” according to the S&P report dated May 20.
The credit-rating downgrade, the county’s third since September 2023, lowered Lackawanna’s bond rating on its general obligation debt from BBB to BBB-, a one-notch reduction. The agency also assigned the BBB- rating to the county’s recent roughly $12.03 million borrowing for infrastructure projects and debt refinancing.
A prior rating reduction last year dropped the county’s bond rating on its existing debt from BBB+ to BBB with a negative outlook. S&P Global assigned the same BBB rating with a negative outlook to borrowing the county did last year when it restructured debt to plug what at the time was an anticipated $5.5 million budget shortfall.
Generally speaking, credit ratings on municipal borrowing via bonds impact the amount of interest owed on the debt. A higher credit rating reflects financial stability and translates to lower interest rates, while a lower credit rating reflects distress or uncertainty and translates to higher interest rates.
“The rating action reflects our view of the county’s long-standing budget imbalance that increased substantially last year, triggering significant cash flow pressure and necessitating a debt restructuring in mid-2024 followed by a deficit borrowing later in the year; we believe liquidity and budget strain is likely to persist, despite a substantial tax increase for 2025,” the S&P report notes. “In our view, these credit conditions are more in line with those of ‘BBB-‘ peers than ‘BBB’ peers, especially as unexpected or adverse conditions could cause significant disruption.”
Democratic Commissioner Bill Gaughan has consistently attributed the pronounced financial problems he and former Democratic Commissioner Matt McGloin inherited to years of mismanagement by prior administrations that used one-time revenue sources and other “gimmicks” to obscure a worsening structural budget deficit, shrinking cash reserves and other issues. Problems that took years to develop won’t be resolved overnight, he said in a press release on the bond-rating reduction.
“The rating downgrade reflects the mess that existed at the end of 2023 and the 2024 budget that did nothing to resolve it,” Gaughan said. “It’s gratifying that, in upgrading the county’s outlook from negative to stable, S&P recognized the long roster of reforms that we have implemented in less than 18 months in office. There’s a great deal of hard work and many difficult decisions ahead, but the reforms are working. We plan to see them through.”
Commissioner Chris Chermak, who voted against the nearly 33% 2025 tax hike, did not immediately respond to a request for comment on the rating downgrade.
