Standard & Poor’s revised its outlook to stable from negative for the Bay City School District after management implemented new policies aimed at improving a declining financial performance.

The agency also confirmed its A-minus underlying rating on the district’s outstanding bonds and its A-minus issuer credit rating.

“The stable outlook acknowledges the steps management has taken to improve financial operations, but in the event pressures arise and reserves fail to stabilize, a negative rating action would be likely,” analyst Justin Formas said in a report accompanying the outlook revision.

Located in the economically troubled Saginaw-Bay City-Midland area, the Bay City School District has seen a steady decline in student enrollment, reduced aid from Michigan, and rising operation costs during the last several years.

Since 2006 district officials have cut $5 million in operating costs and the unreserved general fund balance has grown modestly but steadily since 2005. They also instituted a policy to increase the general fund by half a percent annually but so far have been unable to meet that number.

The school’s largest revenue source is state aid, accounting for nearly 80% of general fund revenue in fiscal 2007. In light of declining state aid, the district expects in 2008 to draw down its general fund balance, which would nevertheless remain higher than the decade-long average.

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