DALLAS -- West, Texas, and its school district had their credit ratings lowered Wednesday by Moody’s Investors Service, which cited the cost of rebuilding and the lack of federal assistance following an April 19 fertilizer plant explosion.
The town’s credit rating dropped to Baa2 from Baa1 while West Independent School District’s underlying rating fell to Baa1 from A1. The outlook is negative for both.
The action affects the school district’s $318,000 of general obligation bonds rated by Moody’s and $385,000 of the town’s GO debt.
West also has outstanding $2.5 million of GO limited tax debt not rated by Moody’s. The school district’s unrated debt includes $12.1 million of outstanding GO bonds and $965,000 of limited tax debt.
Moody’s put the town of West and West Independent School District on credit watch June 4 for possible downgrades.
The explosion at West Fertilizer Co. in the central Texas town destroyed or damaged three of the district’s four schools, leveled scores of homes and businesses, and wrecked city roads and utility lines within a five-block radius of the plant.
The report released Wednesday afternoon said the financial perils faced by West and West Independent School District include “outsized financial pressure due to significant rebuilding costs, severely limited reserves, and denial of Federal Emergency Management Agency assistance.”
West Independent School District’s GO bonds are rated A by Standard & Poor’s, which does not rate the city’s finances.
Both rating companies provide an enhanced Triple-A rating for the district due to coverage by the Texas Permanent School Fund.
Property values and sales tax revenues are expected to decline because the blast leveled homes and businesses, Moody’s analyst Adebola Kushimo said.“The negative outlook reflects our expectation that damage from the explosion will eventually result in tax base declines, and the total impact to the local economy including potential population and sales tax collection loss will be demonstrated over a longer time horizon.”
Repairing damaged streets and utility lines in the blast area will cost $17 million, according to West Mayor Tommy Muska.
West retained its investment grade rating because the city has the tax capacity to support its outstanding GO bonds and ability to raise utility rates to service revenue debt on the water and sewer operations, Kushimo said. About a third of the West’s annual budget comes from sales tax collections, “which could experience significant declines in the near term” according to Kushimo.
The city has set aside money for the debt service payment due October 1, officials said.
The school district’s financial challenges will persist for some time, given the magnitude of building replace and the uncertainty over state aid, Kushimo said, .
West Independent School District had a general fund balance of $836,000 at the end of fiscal 2012. That’s just 8% of general fund revenues, Kushimo said, and less than 1% of the $100 million it will take to replace or rebuild the schools damaged in the blast.
Rebuilding and repairing damaged schools may cost as much as $96 million, officials at West Independent School District said. The district was insured for $59 million.
One of the district’s football fields must be replaced after being used as a staging area for the disaster recovery.
Enrollment in the district north of Waco has been dropping by an average of 1% over the past five years. West Independent School District serves the city of West and several unincorporated communities.
District officials said funds for the August debt service payment are in the bank, and they expect to make the payment in full and on time.