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District 12 credit rating lowered

JOHNSBURG – District 12's continued reliance on short-term borrowing to pay its bills resulted in a two-notch downgrade of its bond credit rating.

Moody's Investors Service, one of the country's largest rating companies, downgraded the Johnsburg school district's score to BAA1 from A2, taking its $10.3 million in outstanding general obligation debt from low-risk, upper-medium grade to moderate-risk, medium grade.

The drop was based off the district's low fund balances and its increasing reliance on its working cash fund and tax anticipation warrants to pay its bills despite a moderately sized tax base with above average socioeconomic characteristics, according to Jan. 24 report.

Because the district has low fund balances, it has been using tax anticipation warrants for the last four years to cover its bills as it waits for the next round of property taxes to come in, Superintendent Dan Johnson said.

District 12 ran a $1.3 million deficit in its education fund last fiscal year, bringing its fund balance to $1.6 million, or about 23.5 days of cash on hand, according to financial statements for the fiscal year that ended June 30.

"The negative outlook reflects our expectation that the district will struggle in the near term to reach structural balance," Moody's report said.

This is the second downgrade for the district in less than two years, according to Moody's. In July 2012, the district's score dropped to A2 from A1.

The downgrade comes as the district prepares to ask its voters for permission to take out up to $41 million in debt to finance maintenance and capital improvements, something Johnson should help the district's financial position by freeing up funds the district is currently spending on shoring up its aging infrastructure.

Some improvements, including new boilers, may also translate into lower utility bills, he said.

In the meantime, the district plans on reducing some of its expenditures so it can build a stronger reserve, Johnson said. The goal is to have the drop reversed in the next year or two, before – if voters give their approval on March 18 – the district issues the next round of bonds.

The lowered rating could affect the interest rates the district receives on the bond.

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