Forty-three school districts in Michigan have suffered from having downgraded credit ratings by Moody’s Investors Service this year because of falling revenue and rising costs.
The Detroit News’ Shawn D. Lewis reports that districts are faced with declining enrollment and a loss of revenue based on a state law which bars increasing local property taxes for operating funds on non-homestead properties. What a credit downgrade means to school districts is that the district’s cost to borrow money is raised, which hits those districts that have to borrow large amounts of money the hardest.
David Jacobson, a spokesman for Moody’s Investors Service, said, “Many have made significant expenditure cuts in recent years, including layoffs, keeping wages flat, or even cutting wages, and cuts to programs/increase in pay-to-play fees for extracurriculars. This has led to declines in financial operations — reserve levels in particular.”
Michigan has fallen behind many other states economically. Mike Addonizio, a school finance expert and professor of education at Wayne State University, says:
“Michigan is now a relatively poor state, ranking 41st among states in Gross State Product per capita,” he said. “That would impair the credit worthiness of local governments, including school districts.”
In the past five years, districts like the Morenci Area Schools in Lenawee County, have taken a hit. This district’s K-12 student enrollment fell from approximately 790 to 670, which resulted in a general fund revenue of a bit under $6.4 million for the 2015-2016 school year. Morenci’s fund balance at this time is $285,360. In order to borrow for cash flow, the district needs a current fund balance of at least $850,000. Morenci Superintendent Mike McAran said his district is very concerned about rising interest rates.
He added that what the district should be concerned about is not credit ratings, but raising test scores, offering a full curriculum and full extra curricular package, managing special education costs, and attracting new students.
As of last week, Jacobson said there was one school district that had been upgraded. Oakland County’s Oak Park District has a $2.6 million general fund balance and about 4,500 students, up from 1,100 five years ago. The district had a $5.5 million deficit three years ago, but now the district has operating surpluses, positive enrollment trends over five years, and has eliminated its deficit balance.
Detroit Public Schools have been managed by a state emergency official for several years and are roughly $483 million in debt. Enrollment for the district has dropped from 100,000 students to about 47,000. When former state superintendent of Public Instruction Mike Flanagan left his post earlier this year, he said in a report to education appropriation subcommittees that lack of cash could force Detroit schools to refinance even more debt, reports the Associated Press.
In spite of the fact that Farmington Public Schools and Holly Area Schools have been downgraded, officials remain optimistic.
“I don’t put much stock in the rating for the future,” superintendent Dave Nuss of the Holly district said. “Our finances have been distressed with declining enrollment and increasing property values, (but) our district is on an upward trend.”
He adds that property values have increased, allowing the district to pay off its outstanding debts. Nuss said the district’s fund balance has increased and enrollment has stabilized. Paul Kampe of the Macomb Daily said the Moody rating will not change the district’s ability to issue bonds, which it is not expecting to have to do.
Assistant superintendent of administrative services Steve Lenar said the district’s Moody rating was likely to increase in the future.