Standard & Poor's Rating Services said it lowered its rating on Carbondale Area School District, Pa.'s outstanding series 2010 general obligation bonds three notches to BBB-plus from A-plus and placed it on CreditWatch with negative implications.
"The downgrade reflects the significant deterioration in the general fund balance due to ongoing structural imbalance and officials' inability to make timely and necessary budgetary adjustments," said Standard & Poor's credit analyst Moreen Skyers-Gibbs.
The potential for further financial deterioration exists with no clear plan to address it, coupled with the current prolonged state budget impasse that has placed additional pressure on liquidity since the district relies heavily on state revenues and has not received any aid.
"The CreditWatch action reflects our view of the critical role delayed state aid has on the district's liquidity and the uncertainty surrounding whether the state budget will be passed in a timely manner," she added, "allowing the district to meet all long- and near-term obligations."
Also, officials have yet to demonstrate their ability to restore structural balance, which remains a concern. If reserves and liquidity continue to weaken, it could lower the rating further.
The agency expects to resolve this CreditWatch placement within the next 90 days, at which time it said it should have greater clarity on the state's progress in passing the budget, as well as the district's financial position.
"The BBB-plus rating reflects our opinion of the district's weakened general fund balance," said Skyers-Gibbs, "and prior years of deteriorating finances now compounded by the current state budget impasse, given its heavy reliance on state aid."
