Reacting to recent financial turmoil in DeKalb County, a major bond-rating agency has downgraded $385 million in school system debt.
The move by Moody's Investors Service likely will increase the cost of borrowing for a district with one of the most problematic budgets in metro Atlanta.
DeKalb raised taxes and cut staff, but still isn't saving money, Moody's said.
There was a bit of good news in the announcement late Monday: Moody's upgraded DeKalb's outlook from "negative" to "stable" because the district cut the budget in a way that should generate cash reserves "over the medium term."
The "stable" label means Moody's doesn't expect another ratings change for at least 18 months.
"While it's a downgrade, a stable rating is preferable to a higher negative rating," school system spokesman Jeff Dickerson said. He said Moody's acknowledged that DeKalb is paying off its debt.
The credit rating agency Standard & Poor's also downgraded DeKalb school bonds slightly in June.
Moody's spokesman David Jacobson said DeKalb's ratings were worse than other major jurisdictions in metro Atlanta. Gwinnett schools' debt, for instance, is AAA rated. However, Jacobson said that downgrades of public debt have been common across America since 2009 and that an Aa3 rating is still "strong."
The downgrade means DeKalb could pay a tenth of a percent more in interest if it borrows again, said Alan Schankel, managing director of municipal credit research at Janney Montgomery Scott, a Philadelphia-based brokerage.
Schankel said DeKalb has relatively strong real estate values that could support more taxes, despite annual slides of 2 percent to 3 percent a year since the recession. "That's not good, but compared to places like California, Arizona and Nevada, it's reasonable," he said.
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