DALLAS — Moody's Investors Service downgraded Texas school bus operator Dallas County School District's $67 million of general obligation debt to Baa1 from A3 and retained a negative outlook.
The Jan. 29 downgrade came barely a month after a Dec. 23 downgrade of three notches to A3 from Aa3.
Moody's also maintained its non-investment grade rating of Ba3 on $12 million of amended and restated promissory notes issued Aug. 1.
"The Baa1 GOLT [general obligation limited tax] rating reflects the district's weak financial position and very narrow liquidity due to increasing support for a non-essential bus safety-camera enterprise that has fallen short of officials' revenue projections to date," Moody's analyst Charles Martin wrote.
"The Ba3 promissory note rating relates to the enterprise, whose operations have historically underperformed the district's projections, and fiscal 2014 revenues available for repayment that were substantially less than maximum annual debt service," Martin added. "The rating incorporates the district's willingness to continue to support the bus safety enterprise, albeit at some risk to the district's credit quality."
The district introduced the camera system in 2012 in the school districts it serves in an effort to reduce the number of cars that drive past buses with their stop signs extended as they load and unload passengers.
The district later issued debt to acquire business development rights to distribute the system to districts throughout Texas with the expectation that the debt would be repaid from future program revenue. Akin to other automated ticketing enterprises, the district would take a share of each $300 summons collected. However, the enterprise has not yet been able to support its own debt service, according to Moody's.
"Dallas County Schools has few options to significantly improve reserve levels and liquidity," Martin noted.
About 64% of general fund revenues were primarily derived from operational charges to local school districts in fiscal year 2014, while 19% came from state aid and 14% from property taxes.
The district uses a portion of property tax revenue to subsidize transportation costs for school districts located within Dallas County. Such subsidies totaled $5 million in fiscal 2015 and can be adjusted annually as the board sees fit, which provides some financial flexibility.
Debt service on general obligation bonds grows to $11.9 million in fiscal 2016 from $8.8 million in fiscal 2014, Martin said.
