Ratings agencies keeping an eye on district’s fund balance
The Crookston School Board on Monday approved the second of three sales of bonds related to the ambitious summer that will be filled with improvement projects at the three local school buildings. Monday's bond issuance totaled just over $6 million and, of the five bidders, the sale was awarded to Robert W. Baird and Co., which submitted an interest rate of 2.98 percent.
The school district's financial advisors, Springsted, Inc., coordinated the bond sale. Springsted Vice President Patty Heminover, in attendance Monday, called the sale "wonderful," mostly because the winning interest rate, compared to the highest bid with an interest rate of 3.39 percent, saves district taxpayers almost $400,000. Also, she added, the 2.98 interest rate beats the 3.22 interest rate submitted as part of the low and winning bid for the first bond sale last December totaling $7.8 million, which was awarded to Piper Jaffrey.
The Moody's rating on both bond sales is A3, a "very strong rating," Heminover said. The third and final bond issuance will take place in three or four months, for the new parking lots to be put in at Crookston High School for just over $1 million.
The key from this point on, Heminover said, will be for the district to maintain its A3 rating. On the plus side, she told board members, previous concerns shared by Moody's and Standard & Poors about enrollment decreases in the district – which amount to lost revenue – have subsided. The "volatile" enrollment pattern from years past, which was often marked by large high school graduating classes being replaced by much smaller incoming kindergarten classes, has pretty much subsided. Enrollment is essentially stable now, she said, with even some small increases.
But the district's fund balance is raising eyebrows, Heminover added. Ever since the financial collapse of 2008, she said, banks, other lending institutions and financial ratings agencies are much more concerned about the amount of cash that school districts, cities and counties have on hand when bonds are issued and need to be paid back.
"Anything down the road that might put you in a financial crunch, they want to see that you have enough cash on hand to pay your bills," Heminover told the board.
Between now and when the next rating call goes out when the parking lot bonds are sold, she said it's critical that the district's fund balance not decrease and at least remain stable. It would be even better, Heminover said, if the balance increased. With stagnant education funding for years coming out of the legislature in St. Paul, she said the new education funding in the new state budget has not gone unnoticed by the ratings agencies. "They're kind of saying if you're getting some new funding your fund balance better grow, too," Heminover said.
If the fund balance drops, she said that during the next rating call, a "negative outlook" could be issued, which would indicate to investors that the district's bond rating is likely to be downgraded. Or it could simply get downgraded up front when the parking lot bonds are issued. The higher the bond rating, the lower interest rates the district gets to choose from, she added. The lower the rating, the higher the interest rates are, and the more difficult it is to potentially refinance the debt service on the bonds further down the road, Heminover explained.
"Still, this was a very successful sale," she said. "Just keep a close eye on your fund balance."