Clark County, Nev.'s school district was downgraded a notch to BBB by Fitch Ratings, which said spending is expected to surpass revenues at the district that recently underwent a reorganization.

Clark County School District educates 320,000 students in and around Las Vegas, making it the nation's fifth-largest,

The district, which includes Las Vegas, had an A-plus rating with a stable outlook from Fitch before a three-notch downgrade in February lowered it to BBB-plus. The district retained a stable outlook with the Dec. 22 downgrade to BBB.

Brian Sandoval, governor of Nevada, attends a news conference at the Nevada State Capitol building in Carson City, Nevada, U.S., on Thursday, Sept. 4, 2014.
Nevada Gov. Brian Sandoval signed legislation implementing Clark County School District's reorganization in May. Bloomberg News

Gov. Brian Sandoval signed Assembly Bill 469 in May to implement a reorganization first begun in late 2015. The plan decentralizes decision-making and funding away from the central office and shifts 80% of school funding to individual schools.

The district has $2.66 billion in outstanding limited tax general obligation bonds. The bonds are backed by the district’s full faith and credit, subject to state limits on the aggregate amount of ad valorem taxes. Roughly $115 million of the $361 million Fitch-rated district GOs are additionally backed by a portion of the county-wide room and real estate transfer taxes.

The downgrade reflects the reduction in already marginal reserves, Fitch analyst Shannon Groff wrote.

“The district has minimal budget flexibility due to its lack of ability to independently raise revenue and limited ability to cut spending,” Groff wrote. "The pace of spending is expected to be above that of revenues given significant capital needs."

Moody’s Investors Service and S&P Global Ratings both gave the school district negative outlooks in ratings issued ahead of a Dec. 7 bond sale. The district sold the $288 million series 2017C of combined new money and refunding limited tax general obligation bonds to fund new construction and the $24 million series 2017D to pay for school buses.

Moody’s affirmed the district’s bonds at A1 and S&P affirmed an AA-minus rating.

For the negative outlook, Moody’s cited “worse-than-expected” financial results for fiscal 2017. S&P mentioned the use of reserves to deal with stagnant, but improving property taxes.

"The revised outlook reflects our view of the district's recent budgetary challenges stemming from downward revisions to expected state funding as well as higher-than-expected arbitration costs," said S&P analyst Benjamin Geare. "While the district has implemented budgetary actions expected to address the mostly one-time shortfall, we believe the district's challenges entering into fiscally sustainable labor agreements and, to a lesser extent, its practice of renegotiating contracts each year will continue to pressure the district's performance."

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