Schools confront lower credit ratings

By ZHAO PENG
Capital News Service
LANSING — Forty-three school districts across Michigan are facing the problem of a downgraded credit rating by Moody’s Investor Service this year.
A district’s credit rating directly relates to the cost of borrowing money for bonds to pay for school construction, renovation, and technology. Lower ratings mean higher interest costs.
However, the downgrading may not have substantial impact on either construction or bond issuing, according to Sandra Weir, the finance director of the Chippewa Hill School District.

“Actually the downgrade will be still considered as tapering,” Weir said. “We were downgraded one notch from the rating we had in the previous year. When we sold our bonds last spring, it did not really affect too much of that.”
Brandy Woodring , an official in the finance office of the Morenci School District, also said the credit downgrading has not much impact on bonding or school construction.
“Our enrollment and revenue have been stable these three years,” said Woodring, “and there is not much impact of the credit downgrading on our district.”
Lower enrollment and lower state aid are two primary factors that led to downgrading in credit ratings for some school districts, school officials said.
Cami Hansen, the finance director of the Carson- City Crystal Area School District, said her district’s downgrading was caused by a decrease in state aid.
Hansen said the district’s enrollment has been stable but “our credit rating is going down because our state funding is going down.”
Downgrading districts range from large urban districts like Detroit, Lansing and Kalamazoo to small and rural ones.
Jennifer Smith, the director of government relations at the Michigan Association of School Boards, said, “Every school wants to maintain their education opportunities as best they can.”
“You cannot bond for teacher salaries or educational things. They are two separate pots of money. So the bonding problem should not affect the education area,” Smith said.
According to David Marco of Michigan School Business Officials, districts that want to issue bonds for construction can get state approval and use the state’s credit rating, which has little to do with their individual credit rating.
“Most district have an individual credit rating, but they actually do not use their own credit rating,”said Marco.
“But there are some districts that face a very bad financial situation. They probably have to go out on their own credit to get short-term loans,” Marco said. “Those cases are going to be the ones that will be affected the most.”
Even though the Moody’s rating has little impact on school districts’ operations, it still reflects how many districts struggle to balance their budgets, said Mike McAran, the superintendent of the Morenci Unified School District.
A quarterly finance report released in June by the Department of Education shows that 58 districts and public school academies ended their 2014 fiscal year with a deficit. Of them, 38 still had deficits as of June 30, 2015.
The School Board Association’s Smith said, “Declining enrollment is a huge problem for some districts. The biggest challenge we are going to face is what to do with the declining enrollment and what to do with the revenue.”
Michigan’s declining birth rate, schools of choice and people moving out of state are all factors leading to the drop in enrollment, Smith said, adding that some districts can address these problems individually, but others cannot.