Ratings - How They Impact Qualified Bond Issues
Submitted by: Darlene Janulis

With recently changing economic trends, it is valuable to understand how schools and municipalities are rated and how this rating can impact qualified bond issues. In 2006, Michigan public school ratings ranged from "BB-" to "AA+". Higher bond ratings result in lower interest expense and less financing costs, such as bond insurance. Therefore, understanding bond rating criteria is a key component of fiscal management.

Many factors are considered when determining a school district's credit rating, including: tax base growth, demographic changes, program and staffing needs, financial profile, cash position, current and future debt and capacity needs.  State aid is an important component of a school district's financial profile, as well as changes in student enrollment which impact state funding levels. The State of Michigan's current General Obligation debt rating is "AA". While these are important components of a Michigan school district's financial profile, other factors can also change the funding level. 

When conducting a rating review, the rating agency will consider all the circumstances by which a school district's financial profile might change.  To show that your district can weather financial changes, it can strengthen its position by:

• Ensuring that the budget accommodates for decreases in funding level and changes in the financial profile.
• Providing some cushion to alleviate immediate financial concerns caused by enrollment deterioration through programming changes, budget cuts and a healthy fund balance.
• Demonstrating sound management practices to deal with impending revenue difficulties.
• Adding support to the district's financial profile with separate millages that provide for a sinking fund levy and an override to Headlee millage rate rollbacks.
• Having various financial policies and procedures in place, documented and reported to the board.

For more information on the rating process, don't miss our panel discussion at the Michigan School Business Officials Conference April 25th, featuring James Wiemken from Standard and Poor's Rating Service.  If have questions and are unable to attend the conference, please contact us at footnotes@umbaugh.com.