CHICAGO — One troubled local school district in Michigan has seen its ratings sink into junk territory while another could be heading toward a state-mandated takeover.
Moody’s Investors Service this week stripped the Pontiac School District of its investment-grade rating, dropping its general obligation unlimited-tax rating to Ba2 from Baa1.
The rating agency maintained its negative outlook on the district, warning that it would likely remain under pressure for the next one to two years. Moody’s also cut the district’s general obligation limited-tax rating to Ba3 from Baa2.
The downgrades affect $15.7 million of GO limited-tax debt, which is a first budget obligation.
The school district is located in the troubled city of Pontiac, one of Michigan’s three municipalities under state-mandated emergency management.
Analysts warned that the district will continue to face pressure from revenue declines due to falling taxable value, enrollment, and state aid. Like the rest of the city, the school district relies heavily on General Motors and Chrysler for tax money, exposing it to volatility in the domestic automobile industry. Aggravating the problem is the district’s lack of a permanent finance director, Moody’s said.
Meanwhile, the state Treasurer on Thursday announced that Gov. Rick Snyder has appointed a review team to examine the Highland Park School District, a step toward a potential state takeover under Public Act 4, the state’s emergency management law.
The move comes a few weeks after the Michigan Department of Education conducted a preliminary review of the school district’s finances and found “probable financial stress.”
The preliminary review found several problems, including recurring fund deficits and a general fund deficit that is greater than 15% of general fund revenues.
“One of the overarching goals of Public Act 4 is to identify potential financial problems sooner,” Snyder said in a statement. “The state was able to get earlier, better, and more relevant financial information than what might otherwise have been the case. I’m certain this team will conduct a thorough review as quickly as possible.”
The 10-member review team needs to report its findings within 30 days.