DALLAS — Moody's Investors Service warned that it could downgrade the underlying Baa1 rating of Texas' Beaumont Independent School District by multiple notches as the district nears the end of its first year under state supervision.
"The review reflects uncertainty surrounding the district's current liquidity position as well as the continuing uncertainty surrounding the timing and reliability of the district's financial disclosures," Moody's analyst Karolina Norris said.
The district's $158.5 million in rated debt is secured by property taxes and backed by the Texas Permanent School Fund for a triple-A rating.
A draft audit for the 2014 fiscal year indicates that the district's general fund balance fell sharply to negative $536,000, or negative 0.3% of revenues, representing a significant departure from previous projections, Norris said.
"Our review will focus on the district's fiscal 2015 financial performance and management's plan for increasing reserves going forward," she said. "The review will further encompass the district's projections for completing the fiscal 2013 audit as well as the forensic audit of bond proceeds expenditures, the results of which could have negative legal and financial implications."
Moody's plans to assess potential liabilities stemming from fiscal 2014 draft audit findings related to improper grant fund accounting.
"The fiscal 2014 decrease in liquidity, combined with a lack of sufficient plan to restore financial reserves, could result in a multi-notch downgrade," Norris wrote. "Furthermore, should the reliability of the district's financial statements be called into question, the ratings could be withdrawn."
Standard & Poor's lowered its issuer credit rating on the district three notches to A-minus from AA-minus in April 2014 as the Texas Education Agency prepared to take control of the district. It assigns a negative outlook.
TEA Commissioner Michael Williams announced the state agency was taking over the district in April 2014 after an FBI investigation of the district's finances amid reports of embezzlement.
