Moody's Investors Service said it has downgraded to A3 from Aa3 the underlying general obligation rating of Holly Area School District, Mich.
The district's general obligation unlimited tax debt is secured by the district's unlimited tax pledge as authorized by voters. The district has a total of $58.4 million of general obligation unlimited tax debt; the A3 rating applies to $29.5 million of outstanding general obligation unlimited tax debt.
The A3 reflects the district's extremely narrow reserves in preliminary fiscal year 2013 results, increasing dependence on cash flow note proceeds to fund operations, limited budgetary flexibility, and accelerated trend of declining enrollment due to competition from neighboring charter and public schools.
Also incorporated in the rating action are the district's above average debt burden, declining tax base valuations and long term risks posed by an elevated Moody's adjusted net pension liability.
The negative outlook reflects the expectation that district operations will remain pressured in the near term. With a history of underestimating general fund expenditures in annual budgets and a steep downward enrollment trend pressuring per pupil operating revenues, the district could see reserves narrow further in fiscal year 2014.
