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East County Wednesday, Jun. 25, 2014 3 years ago

Creditor downgrades district

by: Amanda Sebastiano Staff Writer

EAST COUNTY — Manatee County School District Chairwoman Julie Aranibar smiled, despite the district’s most recent blow.

At a workshop June 23, the school district received a report that its credit rating had decreased in certain areas studied by Fitch Group — a financial information service that issues credit ratings and research through Fitch Ratings.

“Yes, we are on the line here, but we’re putting the house back together,” Aranibar said. “It’s more about where we go from here. We can’t change what has already happened.”

Low credit ratings may make it difficult for the school district to receive loans in the future, unless the rating increases, officials said.

Fitch Ratings issued the district a downgrade for its implied unlimited tax general obligation and for $185 million in certificates of participation (COPS) series 2005A, 2007, 2008A, 2009 and 2011A.

The rating for the selected categories decreased from “BBB+” to “BBB” in investment grade — categories that indicate relatively low to moderate credit risks. One notch lower and the credit score will enter the speculative grade zone, which ranges from “BB” to “D,” and indicates a high level of credit risk or that a default on a loan has occurred.

The lower rating the district received resulted from a combination of factors, including overspending and mismanagement, which resulted in negative general fund balances the last two fiscal years, the report said.

In May, the school district discovered it had to move $7 million from its general fund to other budget accounts as a result of two audits by the State Auditor General’s Office. As a result, the district could only add $1 million to its reserve, rather than $8 million.

The incident serves as an example of financial management concern for the Fitch Group. It predicts the district faces “sizeable penalties stemming from prior years of misuse of funds that could deter progress in improving its reserve position.”

To date, the report cites the school district has lost $21.9 million in reserves.

Along with the negative credit outlook, the school district must also prepare for the expiration of the current 15-year sales tax that funds its capital plan.

The sales tax will expire Dec. 31, 2017. The expiration will force the district to consider offering the tax for voter approval again or attempting to secure bonds.

After auditors find where the unapproved transfers of a 2009 $45 million sales tax bond went, Aranibar plans to talk with other school board members about investigating more than 20 other bonds the board has.

“We have to focus on one thing at a time,” Aranibar said. “After we get through this (bond issue), we’ll start thinking about where to go next.”

The Fitch Ratings report, presented by Conley Weiss, interim CFO for the district until it can replace former CFO Michael Boyer, also poses a greater problem with which the county has struggled over the last year — the appearance of reliability and trustworthiness, school board member Karen Carpenter said.

“The public needs to have confidence in its school district,” Carpenter said. “We’ve been dinged for poor management practices and hit on the operational side. Now management needs to be more careful. If we have to issue bonds, people won’t feel ours are worth anything. We deserved this rating.”

To Aranibar, not being able to receive further financial assistance means not improving classrooms and schools for area students.

“There are things we still need, like air-conditioning units and wings for schools,” Aranibar said.

“Lakewood Ranch High School has a whole area of 30 portables behind the school. We need a wing there, definitely.”

In addition, poor cosmetic and structural appearances will also affect tourism and may impact the number of families moving to the area, said Don Hall, deputy superintendent of operations.

Auditor continues investigation
At the Manatee County School District’s June 23 workshop, Shinn & Co. — the company hired to perform audits on the school district’s finances — said it continues its investigation of the “unauthorized transfer of funds” of a 2009 $45 million sales tax bond. No paper trail or signatures authorize the movement of funds.

Eight million dollars of the $45 million are still being traced. Shinn & Co. “feels confident” it knows where $5 million of the dollars went and why, but is still investigating the $3 million, representatives said Monday.

Superintendent Rick Mills said the district’s computers crashed and many of the email conversations regarding the bond were lost.

Although the company says it should have answers within a month, school board member Karen Carpenter wants her questions resolved now.

“The issue for me is what are we doing to get this missing information?” Carpenter asked. “How are we going to avoid this from happening again in the future?”

Contact Amanda Sebastiano at [email protected].


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