NEWS

More Michigan schools may face higher borrowing costs

By Ann Zaniewski
Detroit Free Press

Nearly 50 Michigan school districts have had their bond ratings downgraded this year by Moody’s Investors Service, meaning it could cost them more to borrow money.

Rick Joseph, a fifth- and sixth-grade teacher at  Birmingham Covington School, was honored as Michigan Teacher of the Year on Thursday, May 14, 2015.

Moody's released a report Monday saying it has lowered the ratings for 47 of the 206 Michigan school districts it rates, and that the number is expected to climb over the rest of the 2016 fiscal year.

School districts are facing credit pressures tied to an ongoing loss of general funds, declining enrollment, an increase in unfunded pension liabilities and a lack of flexibility to raise revenues, according to the report. Having a higher bond rating makes it easier and cheaper for an entity like a school district to borrow money.

The list of downgraded districts includes Farmington Public Schools, L’Anse Creuse Public Schools, Plymouth-Canton Community Schools, Warren Consolidated Schools and Wayne-Westland Community Schools.

The report also noted a bright spot: Of the 58 districts that ended the 2014 fiscal year with a deficit, it said, 41 improved or eliminated their deficits in fiscal year 2015, including Warren Consolidated Schools, Mt. Clemens Community Schools and Brighton Area Schools.

Moody’s said 41 of the 47 districts have experienced a median decline in general fund reserves by about 45% over the last five years.

The report also said stagnant per-pupil state funding remains barely above the level it was in 2009.

"District budgets have been challenged because state increases in (per-pupil) foundation allowances have not kept pace with the average annual rate of inflation," the report said.

School district revenues have fallen due to a 12% statewide enrollment decline due largely to increased competition from charter schools, according to the report.

Additionally, the report noted that districts are paying a higher percentage of their budgets to the Michigan Public School Employees Retirement System (MPSERS). It said from 2007 through Sept. 30, 2013, the reported funded status of the MPSERS plan declined from 88.7% to 59.6%. Meanwhile, the unfunded liability rose from $5.8 billion to $25.8 billion.

Since 2009, Moody’s has downgraded the ratings of 150 Michigan school districts.

Contact staff writer Ann Zaniewski at 313-222-6594 or azaniewski@freepress.com. Follow her on Twitter: @AnnZaniewski.