Moody's Investors Service has downgraded its underlying rating on Illinois' Douglas and Champaign Counties Community Unit School District 301 two notches to Baa1 and assigned a negative outlook. The action affects $5.4 million of debt.
"The downgrade to the Baa1 rating reflects the district's severely weakened financial position following several years of general fund declines and regular use of reserves to support ongoing operations," analysts wrote.
The district has a small tax base with below-average socioeconomic characteristics, but a manageable debt profile with rapid principal amortization. Its characteristics leave it especially vulnerable to ongoing delays in state aid and funding cuts as the state struggles with its own financial woes.
"The negative outlook reflects our expectation that the district's general fund position will continue to be challenged in the near term, given the potential for further delays and anticipated cuts to state aid," analysts wrote. "Additionally, the district faces potential increases in pension costs based on pension reform that is likely to be implemented by the state of Illinois."
Gov. Pat Quinn called a special session for next month to take up pension reforms, including a plan that would gradually shift responsibility for teacher pension payments from the state to districts, but it's not clear whether the measures will win passage.
