Moody's Assigns Negative Outlook To Troubled Dallas School District

DALLAS - Moody's Investors Service has issued a negative outlook for the troubled Dallas Independent School District, which is trying to reconcile a $64 million budget blunder as it makes plans to issue $1.35 billion of bonds.

The change in outlook on the Aa3 rating affects $1.54 billion of general obligation debt.

"The negative outlook primarily reflects heightened concerns regarding the district's financial management and reporting abilities relating to a Sept. 10, 2008, announcement that a budget miscalculation would result in a $64 million reduction in FY 2008 general fund reserves," Moody's analyst Douglas Benton wrote in the report released Friday.

After declaring a financial emergency last week, the DISD board met Friday to evaluate the situation, as well as the performance of superintendent Michael Hinojosa, in a closed session.

The district carries ratings of AA-plus from Standard & Poor's and AA from Fitch Ratings. The district's debt also receives backing from the Texas Permanent School Fund for a triple-A rating across the board. But the PSF is near its capacity and will need additional provisions to cover more debt.

The district's fiscal 2007 audit was delayed this year as the district sought approval for the bonds in May. The audit noted material deficiencies in the district's internal control and internal financial reporting policies.

The $64 million budgeting error from fiscal 2007-08 led the district to tap its $130 million reserve fund and to announce 750 layoffs, including teachers.

"Although the district's board and management team are preparing to make adjustments in order to mitigate further draws upon financial reserves, Moody's has not yet been presented with a viable plan that clearly articulates the needed budgetary revisions and the timeframe for implementation," Benton wrote.

"The district has little room to maneuver within its general fund, as fiscal 2008 ending cash balances were projected to be very thin at $130 million or approximately 11% of receipts," the report stated.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER