Standard & Poor's Ratings Services said it lowered its underlying rating on Hanover Public School District, Pa.'s existing general obligation debt to A-plus from AA-minus.
The outlook is stable.
"The downgrade reflects a considerable deterioration of available reserves to levels that no longer support an AA-minus rating," said Standard & Poor's credit analyst Victor Medeiros. Given that it anticipates expenditures continuing to increase and pressure the budget, it is unlikely the district will rebuild its available reserves back up to previously strong levels over the next several years.
"The outlook is stable because the reductions of reserves were not led by a sudden deterioration in budgetary performance or a structural imbalance," added Medeiros, "rather mainly the cause was an intentional use of reserves to pay down capital and debt in 2012 and 2013."
The fiscal 2015 operating results suggest a further deficit of roughly 339,000, led by increasing pension costs, but the 2016 budget is anticipated to be balanced with the aid of increased state aid and an increase in the tax levy of 2.3%, in accordance with Act 1 limitations. These actions will stabilize reserves at adequate-to-good levels from now on.
"The rating further reflects our opinion of the district's moderate overall debt with limited capital needs and above-average amortization," said Medeiros. Another factor is its stable local economy with adequate income and access to jobs throughout the Baltimore metropolitan area.
The district's full-faith-and-credit GO pledge secures the bonds. The Pennsylvania State Aid Intercept program continues to provide additional security.
Hanover Public School District, with a population estimate of 15,126, is coterminous with Hanover Borough in southwestern York County in southeastern Pennsylvania, roughly 35 miles southeast of Harrisburg and 45 miles northwest of Baltimore. Enrollment at the district's three elementary schools, one middle school, and one high school was roughly 1,640 for the 2013 year.
