Standard & Poor’s Monday lowered its rating on the San Diego Unified School District’s general obligation bonds to AA-minus from AA and gave the district a negative outlook.
“We base the downgrade on a constrained budget and the structural deficit given potential expenditure increases in the next two fiscal years related to pre-negotiated salary increases and restoration of furlough days,” said analyst Sussan Corson.
The analysts said they based the negative outlook on the district’s inability to renegotiate union contracts that extend through June 30, 2013. They also expressed concern that potential mid-year cuts to state funding could result in budget pressures.
District officials put state officials on notice two weeks ago that projected trigger cuts could result in a $30 million deficit for the district this year and a $118 million deficit the following year, with the potential of forcing the district into insolvency.
Despite these potential general fund weaknesses, the district maintains its high rating because the bonds are backed by a dedicated source of funds that comes from taxpayers, Corson said.
Moody’s Investors Service Oct. 27 downgraded the district to Aa1 from Aa2, citing a significant draw on reserve funds.