Downgraded credit rating doesn't overly worry Clark County School District officials
The fallout from the Clark County School District’s budget turmoil continues.
A major credit-rating agency has downgraded the urban district’s rating for the second time in one year. Fitch Ratings issued the school district a BBB credit rating on Dec. 21 — a notch below the previous BBB+ rating given in March when the agency revised its criteria.
School officials mostly brushed aside the lower credit rating, saying the district hasn’t even requested a rating from Fitch since 2013. The school district pays two other agencies — S&P Global Ratings and Moody’s Investors Service — to generate ratings, said Jason Goudie, the district’s chief financial officer.
“Any noise in the market does affect things, but this is, again, another minor downgrade,” he said.
All three ratings agencies use slightly different scales, but they generally follow a system that considers anything with an “A” attached to it near the top.
In November, S&P Global Ratings and Moody’s Investors Service reaffirmed their existing credit ratings for the school district — AA- and A1, respectively — but changed their outlook to negative, meaning the district’s financial position could trigger lower ratings in the future.
Why that matters: Lower credit ratings could result in the district paying higher interest rates on bonds. It’s too soon to tell whether that will actually happen, though. The school district doesn’t expect to issue more bonds for capital projects until June, Goudie said.
The possibility of lower ratings isn’t wholly unexpected. It’s a side effect of the roughly $60 million budget deficit that the district had to overcome last year.
In early December, Goudie warned the School Board of Trustees that lowering the district’s unassigned ending-fund balance — essentially a reserve pot of money — could prompt ratings changes. But the trustees voted to lower the reserve to shore up the budget and prevent more job cuts.
“The downgrade to 'BBB' from 'BBB+' reflects the reduction in already marginal reserves,” Fitch Ratings analysts noted in their report. “The district has minimal budget flexibility due to its lack of ability to independently raise revenue and limited ability to cut spending.”
The agency considers the district’s rating outlook stable but noted that its financial resilience in an economic downturn, even a moderate one, would be poor.
Goudie said the Fitch rating system doesn’t fully take into account the district’s other reserves for debt payments. The district has approximately six months worth of debt payments — or $250 million to $265 million — sitting in reserves, he said.
Board President Deanna Wright defended the trustees’ decision to temporarily lower the district’s ending-fund balance to solve the budget deficit. She said actions speak louder than words listed in ratings.
When district officials met with investors to issue bonds in the fall, they explained the financial situation and ended up securing better interest rates and terms, she said.
“For me, it was a snapshot in time — kind of like grades,” she said, referring to the latest Fitch rating. “You can always bring your grades up … I’m not losing sleep.”
The district hopes to bolster the ending-fund balance over the next fiscal year, which could signal more stability to rating agencies.
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