Moody’s drops school district’s credit rating; barnett to offer budget options

By James R. Riffel

City News Service

Just a few hours after San Diego Unified School District Trustee Scott Barnett said he will introduce a plan to keep the district solvent without closing campuses, the district received word Thursday that its credit rating has been downgraded.

“In the weeks and months ahead, this district is going to be fighting for its very survival,’' Barnett said at a news conference hours before district officials issued a press release saying Moody’s Investor Service has dropped the credit rating for the General Obligation Bonds of the San Diego Unified School District from Aa 1 to Aa2.

According to Moody’s, the one notch downgrade reflects “the district’s substantially narrowed financial flexibility after material draws on reserves in recent years,” the release stated.

The credit downgrade does not impact existing debt but would impact future credit issuances of the district should the rating not be upgraded before a new issue. In the statement issued by Moody’s, the downgrade was based on the district practice of funding ongoing expenditures with-one time sources. Moody’s did indicate that the district’s debt portfolio was “uncomplicated and manageable” and that the rating could improve with a “materially strengthened financial position” in the future.

“The credit rating agencies periodically review the financial position of public agency borrowers to make adjustments based on changing circumstances,’ said Ron Little, Chief Financial Officer for the district. “This rating downgrade, while disappointing, is understandable given the continuing fiscal challenges faced by the district and the pending midyear K-12 education budget cuts potentially coming from the State.”

Little said the downgrade has no immediate financial impact on the district.

“This credit downgrade does underscore the importance of sound and prudent budget solutions for our 2012/13 budget now under development,” said Little. “We have been actively developing budget reduction strategies for the Board of Education to consider that would address the concerns raised by Moody’s regarding the district’s financial position.”

The announcement followed Barnett’s statements, hin which he said his first priority now is to keep the SDUSD from going under’’ financially and being taken over by the state, but he thinks the odds of success are slim because his colleagues are unwilling to make tough decisions.

Barnett pointed to Tuesday’s board meeting, in which he said other school board members taunted the state over whether it would actually assume control of the district. He called their comments reckless.’'

I think there’s a belief the state just won’t close us down, that it’s unfathomable that it would happen,’' Barnett said. The reality is that the SDUSD isfirst in line in front of the cliff,’' he said.

District officials are proposing to shut down or realign up to 14 campuses next school year to save $5 million, with a disproportionate share falling in the neighborhoods he represents, he said.

He conceded that Barnard Elementary School, in the Midway District, is dilapidated and needs to be closed. He also called the idea of merging Mission Bay High School and Pacific Beach Middle School an exciting concept.’'

Barnett offered few clues to how he would close a projected budget shortfall that could reach $100 million for the 2012-13 academic year, other than to say he would go after the big money, which is tied up in personnel.

About 90 percent of the SDUSD’s general fund is tied up in employee expenses, he said.

The program-by-program reductions made by the school board in previous years did not produce enough savings, according to Barnett.

Unions will have to offer compensation concessions, but their leaders are not recognizing the seriousness of the problem, he said.

“If they’re not part of the solution, this district will go under,’' Barnett said.

He promised to reveal the plan, which he said he is still working on, Monday, and introduce it at a board meeting Tuesday.