Agency lowers district's credit rating
The downgrade might cost the School Board more money in the future when it buys insurance or issues bonds.
By ABHI RAGHUNATHAN
Published December 17, 2005
BROOKSVILLE - The Hernando County School Board might face higher interest rates and insurance payments in the future because its financial condition has been downgraded by a major credit rating agency.
On Thursday, Fitch Ratings lowered its appraisal of several financial programs the School Board is using to pay for school construction.
Fitch reduced its rating of the district's certificates of participation, a type of loan program, from A- to BBB+, and its rating of the district's general obligation bonds from A to A-. Fitch also assigned the district's plans to issue $100-million more in certificates of participation a rating of BBB+.
Credit ratings considered "investment grade," or worthy of purchase, range from a high of AAA to a low of BBB-. Kelly McGary, a director in public finance for Fitch, said Hernando's rating of BBB+ was "two notches better than the worst investment grade rating."
Overall, according to Fitch, the Hernando district's debt levels are "moderate."
Fitch's downgrading won't affect current district bonds and loan programs. Deborah Bruggink, the school district's chief financial officer, said the district had purchased a type of insurance for its loans and bonds that insulated it from being downgraded. The district is on the verge of paying about $670,000 in insurance for the roughly $109-million in certificates of participation that it plans to issue in January.
But Bruggink said that Fitch's downgrading may cost the district more money in the future when it purchases insurance or issues more bonds or certificates of participation.
The exact financial impact of Fitch's downgrading is still unclear. Standard & Poor's, another rating agency, plans to keep its assessment of the district at A-.
Still, district officials are not pleased with the news.
"I don't think that anybody is happy," said School Board Chairman Jim Malcolm.
Fitch said in a news release that the lower rating "reflects deterioration of several of the district's general credit characteristics."
Fitch also said it was concerned about a technical error made by district officials. Because they failed to publish required legal notices about the 2004 half-cent sales tax in newspapers, the district has not been able to use any of the money they have been collecting from the tax, which voters approved.
District officials plan to appeal to state legislators and claim that they gave the sales tax enough publicity through other newspaper articles and statements. Then, they want to ask a judge for permission to use the money they have been collecting. The district plans to eventually issue bonds with the sales tax revenue so it can obtain money for school construction more quickly.
Fitch has several other issues with the district's finances.
The credit rating agency says Hernando doesn't have enough money in its unreserved fund balance, or money set aside to deal with emergencies. State auditors have echoed that judgment.
Fitch also says the district will have to dedicate more money to making payments on the $109-million in certificates of participation it will issue next year to speed up school construction.
The district will have to pay back that $109-million, as well as an estimated $116-million in interest payments. The board will make the payments, which could range between $2.9-million and $9.8-million a year, out of money it collects from impact fees and an existing local property tax.
Abhi Raghunathan can be reached at araghunathan@sptimes.com or 352 848-1431.