DALLAS --Williston, North Dakota's public school district was downgraded amid continued financial challenges created by an economy that is significantly concentrated in the oil and gas industry.

The district is also struggling with big enrollment growth. District enrollment reached nearly 3,700 in fiscal 2017, reflecting a substantial 6.7% average annual increase over the last five years, according to Moody’s Investors Service.

As a result of the combined factors, Moody's downgraded the district’s general obligation unlimited tax debt and general obligation limited tax debt to A2 from A1 and due to the ongoing pressures assigned a negative outlook.

New homes at The Meadows single-family home development in Williston, North Dakota, U.S., on Sept. 10, 2015.
New homes in Williston, N.D. in 2015. Enrollment growth is straining the local school district in the oil and gas extraction hub. Bloomberg News

“The negative outlook reflects our expectation that rapid enrollment growth and potential reductions in state funding could strain the district's budget and present management with widening budget gaps,” wrote Moody’s.

Williston, a regional hub city for the Bakken Shale region, has an economy that is heavily tied to oil and gas activity. The Bakken oil play has driven the increase in school enrollment that has in turn driven an increase in spending at an average rate of 7% over the last five years, according to Moody’s.

“The state allocates per pupil state aid based on the prior year's enrollment,” wrote Moody’s. “Therefore, while the district receives aid to accommodate a student population one year ago, it is spending resources to serve a larger population enrolled in the current year.”

For the 2017-18 school year, which begins August 22, the district is projecting a budget deficit of around $5 million. The district is forecasting revenue of $41,367,211, showing a projected budget deficit of $4,542,028. Revenue is down from $45,278,035 for last year.

The district links its budget woes to a drop in state aid. The state recently adjusted the formula for sharing oil and gas production taxes with school districts to address its own budget challenges and Williston expects to receive $3 million less in tax sharing revenue than in fiscal 2017.

Moody’s said in the report that the district’s debt burden is currently moderate, but could increase if the growing student base calls for additional facility needs. The district may hold a bond referendum in the coming year to address projected capacity needs. The district has yet to determine details of any facility project, including its cost.

The city of Williston's general obligation rating was downgraded to Ba2 from Ba1 in July 2016 by Moody’s. The city’s sales tax revenue bonds were also downgraded to B1 from Ba3.

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