DALLAS — Voter approval of two property tax millage requests from the junk-rated Pontiac City School District should aid its fiscal recovery efforts by raising fresh funds for capital and relieving pressures on its general fund, Moody's Investors Service says.
Voters renewed the district's local operating tax, the non-homestead levy, and approved a new sinking fund millage on Mar. 9.
The approved 2.87 mill sinking fund levy will generate approximately $7 million per year for five years. The school district, which has 4,250 students, tried twice last year to pass the 2.87 mills for school building repairs and failed both times.
Passage of the local tax is credit positive for the district because it generates approximately $27 million per year, or more than 40% of general fund revenues.
"Failure to renew the local tax would have been financially devastating for the district," Moody's wrote in its weekly outlook piece published late last week. The renewal extends the tax for another 20 years, ensuring stability in this key revenue stream.
Moody's rates the district Caa1, seven notches under investment grade. The rating reflects the district's May 2013 default on a debt payment. On Feb 27, 2015, Moody's revised its outlook on the district to stable from negative.
The district missed a payment of $1.6 million of 2006 limited-tax general obligation bonds. The district now operates under a consent agreement with the state. It contracts out its financial management services to the nearby Oakland School District.
The Pontiac district is trying to stabilize its finances after a steep drop in enrollment led to shrinking revenues and budget cuts that placed the district at a competitive disadvantage against neighboring districts and local charter schools. Between the 2002-03 and 2014-15 school years, kindergarten through 12th grade enrollment in the district has decreased by 62%, falling to 4,240 students from 11,142.
Since 2013, two $10 million emergency loans provided by the state of Michigan, expense cuts and stronger management practices such as improved compliance with federal grants and better monitoring of cash flows have helped the district's liquidity.
The new millage is an essential component of the district's modified financial and operating plan initiated per a consent agreement with the state, Moody's said. The revenues will improve district liquidity and allow it to continue to chip away at its very large accumulated deficit balance position, which totaled $32 million, or an unusually large 41.4% of the operating fund, which includes the general fund and debt service fund at the close of fiscal 2015, said Moody's.
The district has $22.6 million of limited-tax general obligation bonds.
The city of Pontiac emerged from emergency management in 2013 but remains under state oversight under a consent agreement.
