A Santa Clara elementary school district located in the heart of the Silicon Valley had its issuer rating upgraded to A1 to A2 by Moody's Ratings ahead of plans to issue debt despite enrollment and fiscal challenges.
Alum Rock Union Elementary School District operates 15 schools serving parts of San Jose and unincorporated Santa Clara County and has an estimated 6,758 students enrolled, but the high cost of living and charter school competition are expected to reduce that number by more than 1,000 students to 5,691 by fiscal 2029, Moody's analysts said in a report Tuesday.
Moody's cited for the upgrade its proactive fiscal management in the face of enrollment declines and the affluence of the region, which places the median household salaries in the school district above the national average at $128,000.
The upgrade was "driven by the district's demonstrated ability to maintain a sound financial position, supported by meaningful management actions to address the challenges associated with rapidly declining enrollment," Moody's said.
Moody's also upgraded to Aa3 from A1 the district's outstanding general obligation unlimited tax bonds and assigned the same rating to $52.5 million in Series B bonds the district plans to issue.
The school district had its ratings
S&P
Moody's Aa3 rating on the district's general obligation unlimited tax bonds is one notch higher than its issuer rating. The one notch distinction reflects California school district general obligation bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute, according to the rating agency.
The district will have $240 million in debt post issuance, Moody's said.
The fiscal 2026 second interim report indicates a $39 million general fund deficit, mainly due to spend down of restricted carryover funds, reducing the district's available general fund balance to $33 million or about 20%, which Moody's said is sufficient.
Though multi-year projections indicate additional deficits in the outyears reducing the available general fund balance to $22 million or 15% of fiscal 2028 revenue, Moody's expects performance to exceed projections, given the history of favorable budget variances.
Looking ahead, sustained maintenance of available general fund balance consistent with current projections of above 15% of revenue and better-than-expected performance ensuring structural balance and enrollment stabilization could lead to a Moody's upgrade, analysts said.
Conversely, a downgrade could result from failure to implement the budget stabilization plan leading to structural imbalance, a weakening of the financial position with available general fund balance below 10% of revenue or rapid enrollment declines beyond current projections.
