Rating Action: Moody's downgrades Mount Vernon City School District, NY GOs to Baa1; maintains negative outlook
Global Credit Research - 05 Jan 2021
New York, January 05, 2021 -- Moody's Investors Service has downgraded the rating for Mount Vernon City School District, NY to Baa1 from A2. Additionally, Moody's maintains the negative outlook on the district's existing bonds.
The downgrade to Baa1 reflects a deteriorating financial position as the district generated a fourth consecutive deficit in fiscal 2020. Growing expenditures combined with flat revenues - driven by the city of Mount Vernon's slow transfer of property taxes it collects on behalf of the school district as well as the school district's refusal to increase the property tax levy - are driving the deficits. Positively, in fiscal 2021, the district began collecting its own property taxes with a collection rate of 97% through the first six months of the fiscal year. However, its taxes receivable from the city doubled year over year to $30 million, and it will likely take two years before the district receives the money currently owed to it by the city.
On top of the declining reserve position, the district maintains an elevated total leverage profile as debt, pension, and OPEB account for over 400% of revenues. The district's credit quality could continue to weaken unless management is able to make sustainable changes to the budget going forward. We believe ongoing property tax increases - in addition to timely collections - will be necessary to reverse the district's declining financial position.
The district benefits from a sizeable and growing tax base north of New York City (Aa2 negative) with modest resident wealth and incomes. The ongoing COVID-19 pandemic is not a driver of the rating although governance is a key driver as management decides what fund balance and cash balance levels are acceptable to maintain.
The negative outlook reflects the likelihood that reserves will continue to fall given the history of operating deficits over each of the past four years.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
-A trend of operating surpluses, leading to growth in reserves and liquidity
-The district's successful implementation of collecting its own property taxes
-Continued tax base stabilization and expansion
-Reduction in debt and pension burdens
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
-Continued operating deficits leading to declines in reserves and liquidity
-Tax base contraction
-Material growth in leverage or fixed costs
The bonds are secured by the district's faith and credit and pledge to levy ad valorem property taxes to pay debt service unlimited as to rate or amount. The bonds are further secured by the State of New York's commitment to advance available state aid to pay debt service pursuant to the state's Section 99-B intercept program.
USE OF PROCEEDS Not applicable. PROFILE
The district is coterminous with the city of Mount Vernon in southern Westchester County, directly north of the borough of the Bronx. Approximately 68,700 people live in the district, which educates about 8,300 students.
The principal methodology used in these ratings was US Local Government General Obligation Debt published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1230443. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Christopher Yared Lead Analyst Regional PFG Northeast Moody's Investors Service, Inc. One International Place 100 Oliver St Suite 1400 Boston 02110 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Valentina Gomez Additional Contact Regional PFG Northeast JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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