Like many states, Pennsylvania has programs that add a layer of bondholder security for local school district bond issuers.
To varying degrees, Pennsylvania school districts depend on state aid for revenue support. As explained in more detail below, several state laws provide that, should a district be unable to pay debt service, state aid payments will be “intercepted” and redirected to bondholders through the bond fiscal agent (usually a bank) in amounts needed to cover principal and interest payments due bondholders. These state aid intercept programs enhance bondholder security and typically earn a rating reflecting the stronger security. For districts with low underlying ratings, the higher rating and extra security provided by the intercept translate into lower borrowing costs for capital investment (new school buildings for example).