The Wayland Union school district is one of 43 in Michigan whose credit ratings have been downgraded by Moody’s Investors Service.
Wayland and Allegan both were downgraded from A1 to A2. Such downgrades can increase a district’s cost to borrow money, which may be problematic if Wayland continues on its current path toward seeking a bond issue next May.
Moody’s uses letters and numbers to signify ratings for credit risk, which from lowest to highest are Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C.
Michigan schools are being hit in the credit department as they struggle with decreasing revenue and increasing costs. Districts are facing declining enrollments, which affect state aid payments, and because of Proposal A from 1994, they cannot raise local property taxes for more than 18 mills on non-homestead properties.
The Detroit News is reporting that credit downgrade problems are arising “because Michigan school districts don’t have revenue-raising flexibility and many are losing enrollment,” according to a Moody’s spokesperson.
“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,” the spokesman commented. “This has led to declines in financial operations — reserve levels in particular.”
Wayland schools recently adopted a budget with about 7.5 percent of its budget in the fund balance.
The News reported that Mike Addonizio, a school finance expert and professor of education at Wayne State University, says the Moody’s rating cuts reflect a long, steep recession in which Michigan fell behind many other states economically.
“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.”
Public schools also are dealing with other concerns such as raising test scores, managing special education costs, offering a full curriculum and full extracurricular package and attracting new students.
Oak Park, in Oakland County, is the only district that has enjoyed a Moody’s upgrade this year, from Baa3 to Baa2.
Two items worth noting. First, the A2 rating is still considered as “investment grade”. Second, the Board of Education’s strategic plan approved earlier this year addresses the need to build its’ fund balance over time. The plan sets a target of increasing the level by 0.50% to 1.00% each year towards a 12% initial goal. The proposed budget for this school year implements this program.