OREANDA-NEWS. S&P Global Ratings has lowered its rating on Kishwaukee Community College District No. 523 (DeKalb, Kane, LaSalle, Lee, Ogle, Winnebago, and Boone counties), Ill.'s general obligation (GO) bonds outstanding to 'AA-' from 'AA'. The outlook is negative.

"The downgrade reflects declining reserves after reduced state revenue in fiscal 2016, coupled with the risk that the state might fail to adopt a full fiscal 2017 or 2018 budget or fail to appropriate additional funds for community college districts," said S&P Global Ratings credit analyst Jessica Akey.

The rating reflects our view of the district's:Participation in the DeKalb area economy and access to the western suburbs of the Chicago metropolitan area; Inherent operational flexibility from its ability to raise tuition; andModerate debt burden. Partially offsetting the above strengths, in our view, are the district's only adequate market value per capita, adequate income levels, and decreasing enrollment.

The district operates Kishwaukee Community College, a comprehensive, two-year public college that opened in 1968. The district, with an estimated population of 114,000, serves 831 square miles and covers most of DeKalb County and parts of Ogle, Lee, Kane, LaSalle, Winnebago, and Boone counties. Its fiscal 2015 credit hours were down 9% to 75,897, the third straight annual decline. Management projects flat enrollment for fiscal 2017. It also reports its programs draw students either looking for a two-year degree or planning to go onto a four-year university. Programs include partnerships with Northern Illinois University (a four-year institution), workforce training, and health sciences.

The negative outlook reflects the at least one-in-three chance that we could lower the rating within the one-year outlook period. The outlook also reflects our view of the financial situation in Illinois and the reduced state appropriations, which have significantly weakened the district's reserves and liquidity position.

We could revise the outlook to stable if the expected break-even fiscal 2017 budget is executed, with no further reductions of reserves expected in fiscal 2018.

We could lower the rating during the outlook period should the district continue to experience significant reductions or delays in state operating appropriations that meaningfully weaken operations and available reserves. We would likely lower the rating if the district decreases its reserves with no immediate replenishment mechanism after a trend of negative financial operations, leading to what we consider potential liquidity risks.