S&P: Stone County R-IV School District, MO Outlook Revised To Negative On Declining Fund Balance, Possible Further Drawdowns
The rating service also assigned its 'AA+' enhanced program rating and stable outlook and 'AA-' underlying rating and negative outlook to the district's series 2016 GO refunding bonds and affirmed its 'AA+' enhanced program rating, with a stable outlook, and 'AA-' underlying rating on the district's existing GO debt.
The outlook revision reflects S&P Global Ratings' opinion of the district's declining available fund balance on a modified cash basis following its substantial drawdown of reserves in fiscal 2015, coupled with its expectation of additional drawdowns in fiscal years 2016 and 2017. Although management has planned the drawdowns to fund capital expenditures, the rating service believes the use of fund balance limits the district's budgetary flexibility and reduces its ability to meet unexpected revenue shortfalls or expenditure overages. In S&P Global Ratings' opinion, the district is also vulnerable to economic pressure, including declining income.
"We believe there is a one-in-three chance we could lower the rating if finances were to continue to deteriorate due to fund balance drawdowns, planned or otherwise, to levels we do not consider commensurate with the district's 'AA-' peers," said S&P Global Ratings credit analyst Thomas Zemetis. "We could lower the rating if budgetary reserves were to experience a sustained or substantial weakening or if revenue were to decline, placing downward pressure on finances and structural budget imbalance. All else being equal, we could revise the outlook to stable if the district were to demonstrate a plan to restore available fund balances materially to a level we consider consistent with its comparable 'AA-' category peers, coupled with the significant improvement of income and unemployment."
The stable outlook on the enhanced program rating reflects S&P Global Ratings' assessment of the strength of Missouri's state aid intercept structure. The negative outlook also reflects S&P Global Ratings' opinion that the district could be susceptible to structural budgetary imbalance during a period of economic contraction.
The enhanced program rating on the series 2016 GO refunding bonds reflects an escrow consisting of U. S. government securities supporting the bonds through the March 1, 2020, crossover date, at which time the district will use series 2016 bond proceeds to refund its series 2014 bonds for interest cost savings.