Fitch Lowers Detroit School District, Michigan's LTGOs to 'BB+'; Outlook Negative.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded the Detroit School District, Michigan's (the district) limited tax general obligation (LTGO LTGO Limited Tax General Obligation ) rating to 'BB+' from 'BBB-'. The Rating Outlook is Negative. The LTGO rating had been placed on Rating Watch Negative on Aug. 5, 2005. The downgrade reflects mounting financial pressures for the district as the Board of Education remains committed to improving its financial performance. While the district offset a general fund deficit of $48.7 million (negative 3.0% of spending) in fiscal 2004 (June 30 year-end) with deficit financing deficit financing In government, the practice of spending more money than is received as revenue, the difference being made up by borrowing or minting new funds. The term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing in fiscal 2005, its deficit elimination plan filed with the Michigan Department of Education necessitates significant labor concessions, personnel reductions and school closings over several years to compensate for student enrollment declines. The teachers strike in September reflected difficult bargaining and achieved some salary and benefit concessions, but the disruption of classes accelerated enrollment declines and will require deeper spending cuts in the current fiscal year. The Board is refining its fiscal adjustments to judiciously allocate its resources without compromising educational quality, but the risks of successful implementation are heightened by labor and community sensitivity to the measures. Fitch affirms the 'AA' rating on the district's unlimited tax general obligation bonds, which participate in the Michigan School Bond Loan Fund. The 'AA' program rating reflects Michigan's constitutional and statutory requirements to lend debt service payment funds to school districts that would otherwise default on their qualified general obligation unlimited tax bonds for any reason. Michigan possesses authority to issue general obligation bonds and/or notes so that its long-established School Bond Loan Fund has sufficient moneys for this purpose, and the state constitution prohibits impairment of bondholder rights related to the fund. The 'BB+' LTGO rating reflects the weakened economic base of Detroit, which is coterminous co·ter·mi·nous adj. Variant of conterminous. Adj. 1. coterminous - being of equal extent or scope or duration coextensive, conterminous with the district, the difficulty of making deep spending reductions as enrollment continues to slip and a high debt burden. Under the deficit elimination plan filed in Feb. 2005 (modified in July 2006) with the Michigan Department of Education, the district will reduce general fund spending by 29.8% over a five-year period through fiscal 2010. Fitch anticipates that spending cuts in fiscal 2006 may produce a modest general fund surplus, but the teachers strike in fiscal 2007 may require additional spending reductions from budgetary expectations. Anticipating continued state revenue sharing revenue sharing Funding arrangement in which one government unit grants a portion of its tax income to another government unit. For example, provinces or states may share revenue with local governments, or national governments may share revenue with provinces or states. weakness and enrollment declines, the district is eliminated 3,646 full-time equivalent Full-time equivalent (FTE) is a way to measure a worker's involvement in a project, or a student's enrollment at an educational institution. An FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of 0.5 signals that the worker is only half-time. positions in fiscal 2006 and 2007 and closing 95 schools though 2010. At the end of fiscal 2005, the district had $1.9 billion in outstanding direct. Direct debt ratios are high for districts of comparable size, at $2,098 per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. and 7.4% of market value. The inclusion of overlapping debt Overlapping Debt The debt of a political entity such as a state where its tax base overlaps the tax base of another political entity such as a city within the state. Notes: If the issuer of a municipal bond has overlapping debt, it should be considered. significantly increases overall debt levels to $5,269 per capita and 18.7% of market value. Amortization of existing debt is slow at 15% in five years and 30% in 10 years. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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