State's economy hurts local schools' investment rating

The downgrade is related to budgetary issues occurring on the state level that impact school districts statewide

Leigh Black Irvin
McCormick Elementary School in Farmington as seen June 24, 2015. Renovation of the school is among the projects paid for by a bond issue recently approved by voters.
  • The district's outlook as far as potential additional downgrades remains negative, says the Moody's report
  • A bond to renovate McCormick Elementary School will not be affected, officials say
  • The downgrade will mean the district will have to pay a few thousand dollars more per year in interest

FARMINGTON – Despite a recent downgrade of the Farmington Municipal School District's investment rating, district officials say they are not overly concerned it will affect current operations.

Moody's Investors Service downgraded the district from Aa2 to an Aa3 rating, and said the district's outlook remains negative, in a recently-released report.

"The downgrade to Aa3 reflects the district's deteriorating reserve position after a recent trend of operating deficits, which has also been compounded by state-aid cuts," the Moody's report states. "The Aa3 also considers the district's modestly-sized tax base that serves as the economic center of the Four Corners region, average wealth indices, and manageable debt levels. The rating further considers an elevated pension burden associated with the state-wide pension plan."

Moody's spokesman David Jacobson said that despite the rating downgrade, the district still has the fourth highest rating given by the credit rating agency, and said that anything in the "Aa" category is a high quality, low risk rating.

"But when we say 'negative outlook,' that means that even though the rating was downgraded only one notch, there's still a chance of another downgrade within the next 12 to 24 months," he said.

Jacobson said the downgrade is probably related to budgetary issues occurring on the state level that impact school districts, and said that further deterioration of the district's financial position could lead to another downgrade.

"There's been an operating deficit (within the district), and even though they're making budget cuts to get back in balance, their reserve levels – or cash set aside for a rainy day – are low," he said.

Randy Bondow serves as the district's chief financial officer. Bondow said discussions with the district's financial consultant following news of the rating downgrade have not created too much concern.

"It's still a very good rating, and the consultant said a drop of one level doesn't mean much as far as bond costs," he said. "It will mean maybe a few thousand dollars a year we'll have to pay back. It's probably only one-tenth of 1 percent increased interest."

Bondow said recent changes have impacted this year's rating for the district.

"They said that now we don't qualify (for the higher rating) because our cash reserves are too low," he said. "That's because the state has been taking the reserves back. For a lot of people (the downgrade) may not look good, but when they change the rules on you, what can you do? A lot of other schools have also had their ratings dropped."

In February, voters approved a $26 million bond measure for Farmington schools, much of which will go toward renovation and expansion of McCormick Elementary School. Other portions of the bond funds will be used for repairs at the other district schools.

"The McCormick School project and the other projects won't be affected, it will just be a little more interest that we have to pay back over the years," he said. "We're waiting to see what the state does with their budget – depending on that, the rating could drop even more. We're planning on a balanced budget, but when the state takes the reserves, it makes it hard to balance our budget."

Leigh Black Irvin is the business editor for The Daily Times. She can be reached at 505-564-4621.