How much money should the school district hold in its fund balance to maintain its high bond rating? This is a common question we have received and would like to address with this timeline:
Douglas County School District’s Credit Rating Timeline
May 7, 2010
Fitch Ratings assigns an ‘AA+’ rating to Douglas County School District.
Fund balance was $20.6 million, announced just 6 months prior on November 17th, 2009 when the 2009 Comprehensive Annual Financial Report is presented to the Board.
Tabor Reserve of $12.7 million was held with a Letter of Credit.
Fund Balance policy was revised to increase required reserve amount from 5% to 7%, consisting of a 3% Tabor Reserve, 3% cash reserve and a 1% contingency.
December 7, 2010
The 2010 Comprehensive Annual Financial Report is presented to the Board of Education. The fund balance is $46.1 million, an increase of $25.5 million.
December 13, 2011
The 2011 Comprehensive Annual Financial Report is presented to the Board of Education. The fund balance is $66 million, an increase of $19.9 million.
February 9, 2012
Fitch ratings reaffirms the ‘AA+’ rating to Douglas County School District.
June 19, 2012
At the Board of Education meeting, Chief Financial Officer, Bonnie Betz presents a proposed drawdown of the District’s fund balance to $28 million. Director Silverthorn questions Ms. Betz as to how this significant drawdown of the District’s fund balance will affect their credit rating and Ms. Betz responds that the District’s unassigned reserves of 3% plus a 1% contingency ensure the District’s bond ratings remain strong, not the total fund balance amount. Read a transcript of the interchange below.*
December 13, 2012
The 2012 Comprehensive Annual Financial Report is presented to the Board of Education. The fund balance is $83 million, an increase of $17 million.
January 29, 2013
Fitch Ratings reaffirms Douglas County an ‘AA+’ rating.
Douglas County School District’s policy of holding 7% in reserves, equal to $28 million, is a key factor for the AA+ bond rating they have received since May of 2010 when their fund balance was $20.6 million and the Tabor reserve was met by holding a Letter of Credit. Chief Financial Officer, Bonnie Betz, has confirmed that she believes the District’s bond rating will not drop if the General Fund Balance is drawn down to $28 million.
The Fitch Rating released on January 29, 2013 refers to the past two years in which large operating surpluses of $20 and $19.8 million have increased the District’s General Fund Balance despite budget projections showing a drawdown of the General Fund.
Therefore, the District should address an ongoing pattern of unplanned, large operating surpluses which indicate approximately $20 million in resources each year are not being spent on the education of Douglas County students.
* Interchange at June 19, 2012 Board of Education meeting regarding the required fund balance to maintain the high bond rating:
Director Silverthorn – “We talked about drawing the total fund balance down to like $28 million, etc.”
CFO, Bonnie Betz – “And that would be in the final year in 14-15.”
Director Silverthorn – “Yes. As we move to the out years and the number itself shrinks, we are still confident about our bond ratings and all that kind of stuff, that we will be able to maintain. And I mean, that’s been an issue this year, so I mean…”
CFO Bonnie Betz – “I did ask that question specifically to our underwriters, RBC, because I was concerned about that as well, and we are budgeting for a drawdown of $23 million – how is that going to impact our ratings? And the big point is that we will have solid Board policy indicating that we shall save 3% plus 3% plus 1 and so given that we have Board policy approved by the Board it provides great comfort to our credit ratings so, no, we are not concerned about that and we feel that we are in very good footing moving forward.”