Moody's Investors Service said it has downgraded Gresham-Barlow School District, Ore.'s, general obligation bonds to Aa3 from Aa2.
The rating action affects $38.2 million in Moody's rated debt.
The bonds are secured by an unlimited property tax pledge of the district.
Concurrently, Moody's has downgraded the district's full faith and credit obligations to A1 from Aa3, which affects $2.1 million in Moody's rated debt. The bonds are secured by the district's full faith and credit pledge of all legally available resources and is not subject to appropriation. The stable outlook was removed.
The downgrade to Aa3 reflects the district's pressured financial operations. The district reduced expenditures through staff cuts and furlough days, but expenditures continue to outpace revenues with the district choosing to spend reserves to close the gap.
The district projects structural balance by fiscal 2015 due to a $5 million increase in state funding. However, unless the district can successfully manage expenditure growth, given historical precedent, the district's financial position may further deteriorate. The rating further incorporates the stable tax base and manageable debt burden.
The one-notch rating distinction between the district's A1 full faith and credit rating and the Aa3 GO bond rating represents the less secure pledge for the debt service payments and reflects the additional risk to bondholders from the district's financial, operational and economic condition over the more secure GO pledge.
