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S&P threatens to downgrade Indiana school debt

February 14, 2017

A national credit rating agency is threatening to downgrade Indiana school debt, in a move that could costs districts millions of dollars.

In a statement last week, the national credit rating agency Standard & Poor’s said that it has placed a 90-day watch on the rating for loans to all Indiana school districts. If the state does not resolve S&P’s concerns, the ratings for school corporations across Indiana could be lowered, forcing districts to pay higher interest rates on debt.

Wayne Township Superintendent Jeff Butts said the watch from the S&P could cost the district more than $1 million in additional interest on bonds it plans to issue in the coming months.

“Anytime you are talking about credit, it’s always very concerning,” Butts said. “Being able to take advantage of lower interest rates … is the only thing really that allows us right now, with our current (tax) cap, to maintain the facilities that our community has invested in.”

The warning was sparked by a new interpretation from S&P of a state statute designed to ensure creditors receive payments on loans to districts. The law allows the state to divert aid meant for schools to pay debt if the districts do not make their debt payments. By ensuring that creditors are paid, the law improves credit ratings for districts across the state.

It is unclear whether the state has recently changed how it handles intercepting state aid. S&P said in a statement that the watch was issued because analysts have new concerns about the process.

“As part of a routine portfolio review, we learned that the Office of the Treasurer of State would administer the intercept of state aid under IC 20-48-1-11 differently than we had understood,” S&P said in the statement. “There is a possibility that Indiana could revise current procedures resulting in an intercept of state aid that provides for timely payment of debt service in full. … In the event such revisions are made in a timely manner, the rating could be affirmed.”

The Indiana Office of Management and Budget Director Micah Vincent said in a statement that the state is working to ensure the watch is removed.

“We are looking at possible solutions to address S&P’s newfound concerns,” Vincent said. “It is our goal to ensure that S&P removes the Indiana State Aid Intercept rating from CreditWatch and affirms the intercept program’s excellent credit rating, which supports Indiana’s schools and taxpayers.”

 

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