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Global Credit Research - 24 Oct 2012
New York, October 24, 2012 -- If California voters reject the two tax initiatives for school funding
on the November ballet, Propositions 30 and 38, Moody's
Investors Service would place school districts with weak liquidity on
review for possible rating downgrade soon after the election. In
the report "California School Districts Face Mounting Credit Pressure
If Tax Initiative Fails in November Election," Moody's
says school districts with weak liquidity are not well positioned to handle
the mandated trigger cuts in state funding should Proposition 30 be defeated
and Proposition 38 also not pass.
Moody's expects as many as 150 of the 327 California school districts
it rates to face some degree of fiscal pressure if both propositions are
defeated. The weakest of these are likely candidates that Moody's
would place on review for downgrade following the election. These
districts feature very low or negative general fund reserves or net cash
balances. Less vulnerable districts would be placed on review over
the ensuing months.
Moody's says the credit quality of all California school districts
benefit from the fiscal oversight provided by county offices of education
and the fundamental strengths of the California local government general
obligation (GO) bond pledge and payment procedures. Districts with
liquidity and reserves that are not significantly impacted by the failure
of tax measures would be modestly weaker but not face rating downgrades
because of the propositions' failure.
"When resolving the reviews for downgrade, we would consider
each district's unique credit fundamentals," said Eric
Hoffmann, Senior Vice President at Moody's. Moody's
would also consider the credit impact of mandated cuts in funding on 61
of the state's community colleges, the University of California
(Aa1 seniormost rating, stable outlook ), and the California
State University (Aa2 seniormost rating, stable outlook),
all of which it rates.
Proposition 30 would preserve school districts' current funding
levels while Proposition 38 would add additional funding to K-12
school districts. Under state law, if both measures receive
a majority vote, the one with the most votes will be enacted.
The failure of Proposition 30 would trigger midyear state funding cuts
but if Proposition 38 passes instead, additional revenues would
offset those cuts.
Moody's subscribers can access the report at http://www.moodys.com/research/California-School-Districts-Face-Mounting-Credit-Pressure-If-Tax-Initiative--PBM_PBM146636.
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Julian Edward Metcalf
Public Finance Group
Moody's Investors Service, Inc.
One Front Street
San Francisco, CA 94111
MD - Public Finance
Public Finance Group
Moody's: Some California school districts face reviews for downgrade if both tax initiatives fail
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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