Michigan said it withheld its April 20 state aid payment to the Pontiac City School District, a move that Moody’s Investors Service warned presents a severe credit challenge to the already troubled system.

The Michigan Department of Education is withholding the district’s $1.25 million payment because it has not provided the state with a detailed budget that meets goals that are part of its recently revised deficit-elimination plan, Moody’s said in a commentary released this week.

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