BRADENTON, Fla. - Moody's Investors Service downgraded the general obligation bonds of the Commerce City School District, Ga., three notches to Baa1 from A1 citing its negative fund balance and depleted reserves.
The downgrade affects $8.6 million of outstanding GO bonds in the district, which is 70 miles northeast of Atlanta in Jackson County and is the smallest of three K-12 public school districts in the county. Moody's said the outlook is negative.
"The downgrade to Baa1 from A1 reflects the district's reduced financial position, including the depletion of reserves, which will continue to experience fiscal pressure over the near term," said analyst Nicholas Lehman in a March 3 report. "The negative outlook is based on the trend of operating deficits and challenges that remain in order to return the district to stable and balanced operations without the use of reserves, and limited ability to increase taxes given the cap on maintenance and operations millage."
Moody's said it expects the district's diminished financial position to stabilize at the end of fiscal 2014 though it will continue to experience pressure from declines in state funding and from M&O tax rate, which is capped at 20 mills.
The fiscal 2012 audit reflected a large operating deficit of $1 million for two consecutive years. The deficits are attributed to the growing discrepancy between the district's increasing population of economically disadvantaged students, representing 62% of total full-time-equivalent enrollment, and declining state funds, Moody's said.
The district's primary revenue source is state aid, representing 60% of 2012 revenues, while property taxes account for 23% of revenues.
"The reliance on the state aid during a prolonged decline in funding levels without proactive measures taken on expenditures or other revenues sources led to the depletion of reserves and budgetary imbalance in operations," Lehman said.
In fiscal 2013, the district responded to the elimination of reserves by increasing the M&O tax rate to 20 mills, cutting 11 employees, and reorganizing its teaching models to maximize the state's quality basic education funding. The fiscal 2014 budget implements a new tax rate of 3 mils to cover the district's outstanding debt service in addition to other measures to help cover expenses.
"Management projects the steps taken in fiscal 2013 and 2014 will result in positive operations at the end of fiscal 2014 and eliminate the fund balance deficit," said Lehman. "In addition, the district is projecting a stable to slight increase in its approximately 1,500 enrollment over the near term."
