Fayette County School District of Kentucky general obligation bonds were downgraded to Baa1 from A3 by Moody's Ratings, citing weakening reserves. Moody's also revised the outlook to negative from "under review."
Simultaneously, Moody's also downgraded the school district's lease appropriation bonds rating to Baa2 from Baa1 and put a negative outlook on the rating.
The district has $847 million of debt outstanding.
"The downgrade reflects the continued weakening of reserves following disclosure of inaccurate financial reporting, including inflated fund balance levels and overstated revenue projections, which will result in a deficit general fund balance in fiscal 2026," Moody's said Wednesday.
The school district has a history of inaccurate projections, Moody's said. It issued a $95 million tax and revenue anticipation note in July to help cover spending until property taxes are received in the fall, Moody's said. Moody's said these facts contribute to the negative outlook.
Moody's
For positives, Moody's noted the strong and diverse local economy, growing revenue base, and manageable leverage. The district has hired a new financial management team to close the budget gap, restore a 2% contingency fund and improve fiscal procedures.
In response to the Moody's action, the school district said, "Addressing these challenges is precisely why the Fayette County Board of Education commissioned [an] audit through Weaver, L.L.P. – to give us an independent, clear roadmap to guide FCPS to long-term financial stability. We remain committed to implementing those recommendations and taking all necessary steps to restore our fiscal health while keeping student success at the center of our work."
Fayette County encompasses the city of Lexington, located in the Bluegrass region of Kentucky. It's the state's second most populous city, and the district reports an enrollment above 40,000.
S&P Global Ratings rates the GO bonds AA with a negative outlook and the lease bonds AA-minus. It lowered the rating outlook to negative in December.
