Bonds

King County, Washington, school receives one-notch downgrade from Moody’s

Declining enrollment and fiscal constraints were cited by Moody’s Investors Service in a one-notch downgrade of Issaquah School District 411 in King County, Washington.

The school district’s outlook was also revised to stable from negative, according to Monday’s ratings report.

The district has roughly $670 million of general obligation unlimited tax (GOULT) debt.

The Moody’s Investors Service Inc. logo is displayed outside of the company’s headquarters in New York on Feb. 21, 2012.

Bloomberg News

The district’s Aa1 GOULT rating is equivalent to the district’s issuer rating, based on the district’s general obligation full faith and credit pledge as well as an unlimited property tax that is dedicated to debt service.

Issaquah School District 411 is east of Seattle in King County and provides educational services to the city of Issaquah, as well as portions of the cities of Newcastle, Sammamish, Bellevue and Renton.

The district has projected fiscal 2024 enrollment of about 19,000 students across 16 elementary schools, six middle schools and four high schools, according to Moody’s.

The issuer rating was downgraded to Aa1 “because enrollment will likely continue to decline, economic growth will moderate and the district’s narrow financial position will remain low compared to national peers even with a surplus in unaudited fiscal 2023 (year-end August 31),” Moody’s analysts said.

Moody’s also cited the district’s financial disclosure as a weakness compared to peers in other states because, like all Washington school districts, it does not report its capital asset values and depreciation or other post-employment benefits in leverage and fixed costs.

The district’s OPEB burden is “likely immaterial, however, because the district only has an implicit rate subsidy,” Moody’s analyst said.

On the upside, Moody’s said, the district’s local economy is robust and benefits from the strength of the Seattle metro area. Resident incomes and wealth significantly exceed national medians and will remain strong, supported by a desirable location, high-value homes and high-wage employment opportunities. Long-term liabilities are moderate, and fixed costs are low.

The outlook was revised to stable, according to Moody’s, because financial performance will stabilize given a likely surplus in fiscal 2023 and balanced operations budgeted for fiscal 2024.

Significant economic growth that translates to consistent enrollment growth and material and sustained improvement in reserves could lead to an upgrade.

If the school district experienced significant deterioration of economic indicators, weakened financial performance, including a decline in reserves or if leverage increased significantly, it could result in further downgrades.

The district’s GOULT bonds are payable from the district’s full faith, credit, and unlimited property tax pledge. Bondholder security is enhanced by the county-provided lockbox for GOULT debt service.

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