CHICAGO — Moody's Investors Service April 6 stripped Illinois' North Chicago School District No. 187 of its investment grade rating as the district struggles with property tax valuation declines and operating deficits.

The district is about 40 miles north of Chicago in Lake County. Moody's dropped its rating two notches to Ba1 from Baa2. Its outlook is negative on $47.7 million of outstanding general obligation unlimited and limited tax bonds.

The rating reflects "the ongoing property tax valuation declines, additional operational deficits across the district's main operating funds and reliance on additional, one-time appropriations from the state of Illinois for operational and capital expenditures," Moody's wrote.

The downgrade also reflects declines in federal impact aid, which is pledged to pay debt service on alternate revenue source GO bonds from a 2010 issue and is projected to fall below what's needed to cover the bonds as soon as fiscal 2016.

"Also incorporated in the rating is the district's healthy reserve position that is largely due to the infusion of bond proceeds, as well as ongoing oversight from the State Board of Education," Moody's added. The district expects to rely on its reserves to fund ongoing operations and capital needs should additional state aid fall through.

The negative outlook reflects the expectation of continued property tax valuation declines which will hurt its coffers as the district has already imposes a maximum property tax rate.

The district operates four elementary schools, one junior high and one high school, along with an administrative building. Enrollment fell to 3,822 students in fiscal 2014, with a 1.4% average annual decline since 2009.

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