New upgrade for Illinois school district coming back from SEC probe
Lincoln Way school district in suburban Chicago moved further up the investment grade ladder in recognition of its fiscal turnaround that followed a fiscal scandal that drew regulatory sanctions and a criminal probe of its former superintendent.
Moody’s Investors Service raised Will County Community High School District 210, known as the Lincoln Way district, by one notch to Baa1 from Baa2 and lifted its outlook to positive from stable. The action impacts $220 million of debt.
The Dec. 16 upgrade recognizes “the district's continued financial improvement including material additions to fund balance and an expectation that the district will no longer require the use of tax anticipation warrants,” Moody’s said in its rating report.
The district benefits from a large tax base with high resident income but strengths are balanced against the district's moderate debt burden with an escalating debt service schedule that remains a strain on the district’s balance sheet.
“The outlook also incorporates the expectation that the district will further restructure its debt to a more level amortization structure,” Moody’s said.
The district could win another upgrade if progress continues in building fund balances and liquidity and succeeds in restructuring the debt service schedule. The rating would suffer if the district’s reserves decline, it returns to a reliance on cash flow borrowing, or it pension burden grows.
The district serves 6,800 students in six suburbs about 40 miles southwest of Chicago with a total population of 108,290.
Moody’s cut the district to junk in late 2016 after having slapped it with a five notch hit to Baa3 the previous year over its weak finances and use of short-term borrowing to deal with fallout from the district’s disclosure of improper accounting of past bond proceeds.
A probe by the Securities and Exchange Commission and Department of Justice disclosed by the district in 2016 led to the filing in 2017 of criminal fraud charges against the district’s former superintendent, Lawrence Wyllie. He was accused of using bond proceeds to inflate the district’s apparent fiscal health between 2008 and 2012. The criminal case remains unresolved, according to published reports.
As a result of the scheme, Wyllie fraudulently caused Lincoln-Way to assume at least $7 million in additional debt by the fraudulent issuance of bonds, on which Lincoln-Way continues to pay interest, as well as suffer a loss of at least $80,000 in school district funds that were misappropriated and misused by Wyllie for his own personal benefit, U.S. Attorney documents said.
The district launched a stabilization plan. It hired a new superintendent, finance director and assistant superintendent of business operations and implemented a number of enhanced financial policies and procedures, including the maintenance of five-year operating projections and a fund balance policy that requires the district to achieve a 3% surplus each year until it reaches 33% of budgeted expenditures.
Operating reserves were built and balanced budgets adopted. Before 2017, the district has posted six years of operating deficits.
The district won back its investment grade rating in August 2019. It won another upgrade in December 2019.
“This rating improvement serves as another valuable independent assessment of the district’s financial improvements,” District Superintendent R. Scott Tingley said in a statement Dec. 17.