Answer: Throughout our discussions with Moody’s analysts, two key factors outside of the district’s control, coupled with planned projected use of reserves in 2018 and 2019, contributed to the rating adjustment.  First, Michigan has significantly restricted the district’s ability to raise revenue under the current funding Proposal A funding model. Second, the district’s exposure to unfunded pension liabilities, which are now reported on the district’s Comprehensive Annual Financial Report.

Answer: Compared to other states, Michigan districts are significantly restricted from raising operating revenue to keep with increasing costs.  While the current funding model was in existence during the last full credit review in 2013, when the district’s rating was Aaa, state determined funding increases have not kept pace with inflation with Bloomfield’s cumulative increases being among the lowest of Michigan districts. This continuing trend is a negative factor in the eyes of the analysts. For example, in Ohio, districts can approach voters up to three times per year to raise revenue.

Answer: Governmental Accounting Standards required the pension liability to be reported on the district’s Statement of Net Assets for the first time as of June 30, 2015. While Moody’s was aware of unfunded pensions before this requirement, they now have an actuarially determined allocation for their analysis. Furthermore, Moody’s adjusts the net pension liability (ANPL) using  a uniform rate of return, the amortization period, the market value of assets of assets, etc. Moody’s ANPL for Bloomfield is more than double that reported in our CAFR. While there have been pension reforms over the past several years, it is projected the system won’t be fully funded until 2038. The reforms include the State funding a portion of the annual required contributions from the School Aid Fund, which diminishes the monies available to provide funding directly to districts for the classroom. Since the State oversees the school pension system, a remedy is outside of the district’s control.

Answer: Actually, it’s quite rare for districts to receive an Aa1 or above. In Michigan, the average rating is between A2 and A3. Bloomfield and Birmingham are the highest rated K12 schools in Michigan. Again, comparing Michigan with Ohio, only three districts in Ohio have received a Aaa rating and Ohio has an average fund balance of 35% and greater revenue raising ability, whereas Michigan has an average fund balance of 12% with limited revenue raising ability.  Bloomfield Hills Schools seeks to maintain a fund balance of 15-20% and the last audited fund balance was 24.1%. Moody’s indicated that our ability to raise revenue and our pension liability had significantly more of an impact on our rating than our overall fund balance. While Bloomfield’s enrollment is increasing and projected to continue increasing, the statewide declining enrollment and increased competition within education are factors that negatively impact our rating since we are in Michigan. Lastly, Moody’s recently revised their analysis to reduce the weighting of the district’s tax base, which is very strong, by 10% and increase the pension/debt weighting by 10%.

Answer: Yes, the district’s rating is monitored by Moody’s over the life of the existing debt.   Additionally, the district may consider the use of other rating agencies in the future as well.

Answer: While the change in our credit rating will not have an impact on the cost of our existing debt, it could impact the interest rate on future debt. However, any new debt would have a new credit rating analysis  performed to determine at that point. This means there won’t be an additional tax liability to taxpayers as a result of this rating change.

Answer: The Sinking Fund is not debt and has no interest component. The Sinking Fund is an annual tax levy for ongoing repairs, security and technology that avoids interest-based borrowing for such needs.

As stated above, credit ratings are a factor for determining the interest rate on any future debt.  Receiving an Aa1 rating still places the district in the top handful of all educational entities in Michigan - including two ISDs that have received an Aa1 or Aaa rating.  However, a lot can change in the next few years and if the funding mechanism changes in the State of Michigan to reflect some of the best practices and/or funding availability of our neighboring states, districts may have a better chance of obtaining a Aaa rating.  To learn more about Michigan’s funding system and why we hope to see a change, visit www.FundMISchools.org.