NEW YORK - Moody's Investors Service said it has downgraded to Baa3 from Baa2 the underlying rating on Oak Park School District, Mich.'s $20.2 million of outstanding rated general obligation bonds and affirmed the negative outlook. The bonds are secured by the district's general obligation unlimited tax pledge.

The downgrade to the Baa3 rating primarily reflects the district's ongoing deficit General Fund balance. While the district projects modest improvement in the deficit position in the current year, the negative fund balance will continue to comprise a large share of the district's annual revenues.

Also included in the rationale for the downgrade are ongoing declines in the district's full valuation, limited cost-cutting flexibility going forward, ongoing reliance on state aid revenues to fund operations, and above average debt burden.

Affirmation of the negative outlook reflects Moody's expectation that the district's financial operations will continue to face stress in the near term.

A recent increase in enrollment is expected to result in revenue growth in the current year, but the district's ability to sustain a positive enrollment trend is ultimately uncertain.

The district will likely continue to operate with a negative general fund balance for the next couple years, resulting in ongoing reliance on cash-flow borrowing to fund operations and providing little to no flexibility to offset additional revenue declines.

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