Moody’s Investors Service last week downgraded the issuer rating for the Union County School District to A2 from A1.

Moody’s also downgraded to A3 from A2 the rating on $42.3 million of outstanding debt for installment-purchase lease revenue bonds issued in 2006 on behalf of the district by SCAGO Educational Facilities Corp.

The issuer rating represents the implicit general obligation rating of the district, which has low income levels, an above-average debt burden, and a weakened financial position, according to a report by analyst Xavier Smith.

The district shows signs of financial stabilization and closely monitors revenues; however, it faces revenue weakness pointing to “significant fiscal stress and reliance on state aid as well as exhaustion of available reserves,” Smith said.

Declining revenues have contributed to three consecutive operating deficits starting in fiscal 2008 and state aid has been reduced by $1.3 million in fiscal 2009 and by $2.4 million in fiscal 2010. Nearly 80% of the district’s general fund revenues are from state sources.

Moody’s said the Union district has instituted significant reductions in operating expenditures that include staff layoffs and a spending freeze on non-essential purchases.

“In addition to a 12.9% reduction in expenditures in 2010, the district has budgeted to further reduce expenditures by approximately $1.2 million in fiscal 2011, and positively management anticipates ending the fiscal year with an operating surplus of approximately $1 million,” Smith wrote, noting that no new debt is expected to be issued in the near term.

The district serves Union County in the state’s industrial Piedmont section.

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