BRADENTON, Fla. – Mississippi's Hattiesburg Public School District saw its general obligation bond ratings drop three notches to Baa3 due to severely eroded reserves and liquidity, according to Moody's Investors Service.
The downgrade, to Baa3 from A3, affects $5.1 million of GOs, Moody's said Wednesday.
The new rating, just a step away from junk, remains under review for possible downgrade pending clarification of the district's current financial position, according to analyst Kenneth Surgenor.
The district also has outstanding $2.7 million in limited tax notes, $2.6 million in state aid capital debt, $6 million in qualified school construction bonds, and $100,000 in other guaranteed debt not rated by Moody's.
The district issued a $7 million tax anticipation note for operations during the fiscal 2016 school year "to shore up shortfalls created by the faulty financial projections used to create the fiscal 2016 budget," Surgenor said.
"The placement of the district's ratings under review for further possible downgrade reflects not only the severity of the district's financial contraction but the district's inability to provide substantive answers regarding the current financial position and a clear plan to restore reserve levels," Surgenor said. "It also reflects the potential for state conservatorship."
Interim district superintendent John Ladner could not be immediately reached for comment.
The district said it is financially stable in unaudited fiscal 2015 financial documents posted to Municipal Securities Rulemaking Board's EMMA electronic filing system.
A draft auditor's report included in the document gave the district a clean opinion for the year ending June 30, 2015.
Moody's said Hattiesburg's financial operations are expected to remain constrained over the near-term due to a trend of significant general fund deficit spending after drawing on reserves in each of the past four years "with each subsequent year more severe than the previous one."
Last spring, management expected a deficit of $800,000 for fiscal 2015. By June, the district concluded the year with a $3.4 million general fund operating deficit, reducing the fund balance to $769,000, Surgenor said.
"This amount represents an extremely narrow 2.1% of revenues," he said. "Additionally, the district concluded fiscal 2015 with an ending cash position of negative $2.3 million."
In December, the superintendent and business manager resigned. The superintendent attributed his departure to the district's financial problems, according to the Hattiesburg American.
On Thursday, the interim superintendent notified employees of pending salary and job cuts, the paper said.
Hattiesburg is located in southern Mississippi and provided K-12 education to about 4,000 students last year.
Moody's said that during its rating review period over the next few weeks it will attempt to obtain information about the district's near- and medium-term cash flow projections, plans to balance fiscal 2017, and gauge the likelihood of the district entering conservatorship.
In Mississippi, the governor can declare a state of emergency in a school district for a number of reasons, including financial difficulties, according to the state Department of Education. The DOE can assign an interim conservator, and even abolish a school district and assume control of the district.
Four of the state's school districts are currently in conservatorship, according to the DOE's website.