Duluth School Bond Rating Downgraded
Posted at: 08/15/2013 5:00 PM
| Updated at: 08/15/2013 5:01 PM
Moody's Investors Service has downgraded its bond rating for the Duluth School District, meaning the district could have to pay more interest if it sells bonds in the future.
Moody's announced the downgrade Wednesday to Baa2, which is down one notch from the previous rating of Baa1. Baa2 is roughly in the middle of the ratings issued by Moody.
The report sites declining enrollment, operating deficits, and the high debt burden of the district's long-range facilities plan.
"The negative outlook reflects the expectation that the district's operations will continue to be imbalanced," Moody's wrote. "The imbalance is due largely to a continued reliance on one-time land sale revenues that have not fully materialized. Should land sale proceeds continue to fall well below budgeted levels, the district is likely to end fiscal 2014 with a deficit General Fund balance. Furthermore, the district's deteriorated liquidity and substantial reliance on cash flow borrowing significantly reduces budgetary flexibility to meet its substantial fixed obligations."
Moody's said the rating could be improved in the future if the district makes substantial improvement of operations and restores its reserve to previous levels, stabilizes or increases enrollment, and reduces reliance on one-time revenue sources and borrowing.
In response, the district said, "It's disappointing but we remain hopeful that future surplus property sales will boost the district's fund balance. The immediate impact from the downgrade is limited because the cost of existing bonds will not be affected. The impact of the change will be measured if the district sells bonds in the future, depending on market conditions at the time of each sale."
The statement from Moody's can be read at https://www.moodys.com/research/Moodys-downgrades-to-Baa2-Duluth-ISD-No-709-MNs-outstanding--PR_280239.