The state audit process is expected to begin in February. It will take approximately three months.
Losing its credit rating could have little immediate impact on the DeKalb County School District unless it intends to seek funds soon, said Bart Hildreth, a professor in Georgia State University’s Andrew Young School of Policy Studies.
“The impact is first on the existing bondholders who face a loss of value if they try to trade their (school bonds),” he said. “Most municipal bonds are buy and hold. Only when they go to trade it would investors be interested in buying … if they can get it at a lower price.”
If Moody’s withdraws its credit rating, it could alert potential lenders to concerns with an entity’s financial activities, Hildreth said.
“To issue (a bond), they would pay a penalty — if they could issue it at all,” he said. “More than likely, someone would issue, but at a higher rate. It’s not good timing if (the DeKalb County School District) needs to go out to the capital market soon … and finding their credit rating is being suspended.”
The district, under the leadership of former Superintendent Steve Green, took hits publicly for failing to submit the audit documents while asking for additional funding. Many parents and local advocacy groups have questioned the district’s spending.
“A lot of what was said and supposed to be done has not been done,” said Joel Edwards of the government watchdog group Restore DeKalb. “Where is the money? Show us the money.”
Green left the district in November. Ramona Tyson was then appointed interim superintendent.
“Upon taking the role in November, the interim superintendent immediately formed a team to implement a corrective action plan and submit the requested financial information as quickly as possible,” district officials said in a statement. “Both the (fiscal year) 2018 and (fiscal year) 2019 financials were delivered to the Georgia Department of Audits and Accounts within approximately 30 days. Upon completion of the audit, (the DeKalb County School District) will share the (fiscal year) 2018 financial statements with Moody’s Investors Service.”
The district was one of eight entities recently placed on review, affecting some $260 million in outstanding debt. Other affected agencies include the Chatooga, Mitchell, Quitman and Telfair county school districts, all in Georgia, as well as Boyd County in Kentucky and the villages of Saranac Lake and Elmsford in New York.
Two years ago, Moody's upgraded the district from A1 to Aa3, the second tier of the company's rating system.
“The upgrade to Aa3 reflects the district’s improved financial position, which is supported by conservative budgeting practices and strengthened revenues,” Moody’s said at the time. “The rating also reflects the large, diverse tax base that benefits from institutional presence and proximity to Atlanta (Aa1 stable(m)), and manageable debt and pension burdens.”
District officials said the Moody’s news will not impact financial operations or bonds already issued by the district. The district’s rating from Standard & Poor’s — currently AA, the group’s second highest level — also is not affected.
Despite the missing financial documents, district officials have held public meetings as they sought additional funding for various projects. District officials recently discussed plans to seek up to $265 million from taxpayers to complete additional construction projects and pay for cost overruns from its most recent Education-Special Purpose Local Option Sales Tax V (E-SPLOST V) program.
Moody’s Rating Scale
Aaa: Judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Judged to be of high quality, subject to very low credit risk.
A: Judged to be upper-medium grade, subject to low credit risk.
Baa: Judged to be medium-grade, subject to moderate credit risk and may possess speculative characteristics.
Ba: Judged to be speculative, subject to substantial credit risk.
B: Judged to be speculative, subject to high credit risk.
Caa: Judged to be speculative of poor standing, subject to very high credit risk.
Ca: Judged to be highly speculative, likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Lowest rated, typically in default with little prospect for recovery of principal or interest.
*Numerical modifiers 1, 2, and 3 are affixed to each generic rating classification, indicating a higher end, mid-range or lower-end ranking of that rating category.
Source: Moody’s Investors Service