Board of education bond vote might drop credit rating
by Megan Thornton
September 09, 2012 02:07 AM | 2055 views | 0 0 comments | 7 7 recommendations | email to a friend | print
CANTON — The Cherokee County Board of Education voted unanimously at its Thursday meeting to approve bonding $40 million in the Series 2012 general obligation bonds after hearing from a financial advisor that the decision may lead to a reduced credit rating.

However, the school system still maintains one of the highest credit ratings of all school systems in the state, the advisor said.

The potential lowered rating could be because of state cuts to the local budget, school members said during discussion at the meeting.

The board was given a presentation from Citigroup representatives, the school system’s financial principal. Superintendent Dr. Frank Petruzielo said the purpose of the presentation was to give a brief overview of where the district is financially and where it’s headed in the future.

Petruzielo said bonding future sales tax revenue from the Education Special Purpose Local Option Sales Tax allows the district to address overcrowding issues and needed technology upgrades, rather than wait for Ed-SPLOST funds to trickle in.

He said voters, through the approval of the Ed-SPLOST, have already approved the monies and the board has voted unanimously to approve its Five-Year Facilities Plan.

“In this particular situation, we’re going to borrow $40 million out of a potential $158 million that could be borrowed,” Petruzielo said. “The rest of that, in all likelihood, will be borrowed over the length of our current SPLOST and as our additional needs… are addressed and met.”

Approximately $20 million of the old Ed-SPLOST authorization will be used for future capital needs, according to the presentation documents. In addition to those funds, the district also has $138 million of new general obligation bond authorization from the November Ed-SPLOST referendum.

Both authorizations can be combined to fund about $158 million worth of new projects, according to the presentation documents. For the Series 2012 general obligation bonds, the district plans to borrow approximately $40 million, $20 million from both the old and new authorizations.

The bonds will fund the Marie Archer Teasley Middle School project, with construction begun in March and slated to be completed August 2014.

Candler Howell, assistant superintendent of financial management, introduced the two main consultants for the bond series, Financial Advisor Robert Morrison of Davenport & Company and Citigroup Underwriter Bryce Holcomb.

Holcomb told the board now is a good time to bond the funds.

“Right now, we’re at four-year lows in the marketplace,” Holcomb said. “My point in mentioning this is it’s a wonderful time to borrow money and you should get some of the lowest rates you will ever get.”

According to documents presented to the board, the school system has a 100 percent fixed rate debt profile. In total, the district has a total of $334,805,000 in outstanding bonds.

The district’s credit ratings for underlying general obligation ratings are Aa1 with a negative outlook from Moody’s and AA- with a stable outlook from Standard & Poor’s. Its state aid intercept ratings are Aa1 for Moody’s and AA+ for Standard & Poor’s. The highest rating is AAA, Holcomb said.

Holcomb said the negative outlook in Moody’s rating is simply because of the state austerity cuts the district has had to incur over the last five years. Despite the negative outlook, Holcomb said the district has one of the highest credit ratings of all of Georgia’s school boards.

Vice Chairwoman Janet Read asked Holcomb whether CCSD was the only system that has a negative outlook in its credit ratings.

“No,” Holcomb said. “Also, a negative outlook doesn’t mean they’re going to downgrade your rating.”

Holcomb said even the next-lowest credit rating is one of the highest of any school system in the state.

Board Chairman Mike Chapman said he would like to see the rating agency’s issued opinion to measure the overall impact on budget cuts from the state on the district’s credit rating

“The cause and effect is very important for the public to know,” Chapman said. “It’s not just class sizes and all that but it’s overall our budget. If our borrowing costs in a fast-growing community like this are going up because of the actions (of state legislators) that are going on… we cannot spend our reserves. We want to be a good, fiscally sound organization, but I just wonder if it’s possibly state-driven in that bond rating for us.”

Petruzielo echoed Chapman’s concern about the continued state cuts and what the lack of funding means for the district.

“The only option we have is to take money out of reserves, raise class size, furlough teachers… there isn’t anybody else on the other side of the table that we can shift the responsibility to,” Petruzielo said. “At the end of the day, our rating is going to be more sensitive based on what’s happened to us based on federal funding and based on state funding…”

Petruzielo commended the board for using discretion in dipping into reserves when it has been needed and soundly managing district funds.

“By the same token, you can’t do that year after year and not pay a price,” Petruzielo said. “The price is you’re not going to get the same rating, you’re not going to get the same interest rate—there will be a fiscal consequence and, so, it’s a balancing act.”
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