Moody's Investors Service said it has downgraded the underlying rating of Benton Area School District, Pa., to A2 from A1 in conjunction with sale of $2.5 million general obligation bonds of 2013 and assigns A1 enhanced rating.
The downgrade to A2 affects $13.4 million in outstanding GO debt.
The negative outlook on the underlying rating has been removed and the outlook on the A1 enhanced rating remains stable.
The bonds are secured by the district's unlimited tax general obligation pledge as debt service is excluded from Special Session Act 1 property tax limitations (Taxpayer Relief Act) that restrict Pennsylvania school districts' ability to increase their property tax millage beyond an annual index without seeking specific exemptions or voter approval.
Proceeds from the bonds will be used to currently refund the district's general obligation Series 2011 bonds and Series 2008 notes and bonds with estimated 3% NPV savings taken over the life of the bond with no extension in maturity.
The downgrade to A2 reflects the district's adequate but narrowed financial position, which has experienced a deficit in fiscal 2012 net of bond proceeds, and anticipates fixed cost increases related to annual pension requirements. The rating also reflects the district's limited tax base with relatively below average and declining socioeconomic wealth and income and a high debt burden.
The A1 enhanced rating with a stable outlook is based on the Pennsylvania Act 150 School District Enhancement program which is authorized under Sections 633 and 785(A) of the Public School Code of 1949. The intercept has been tested twice; both times, voluntary notification came early, enabling the mechanism to operate successfully prior to default. In an instance of default, the Secretary of Education would continue to withhold state aid until the deficiency is cured. Payments can be withheld into the subsequent fiscal year if necessary. Payments can be accelerated within the current fiscal year and all forms of state aid are interceptable.
