Moody's Investors Service has downgraded the Saline Area Schools district's general obligation rating from Aa3 to A3, according to a report on the Moody's website.
The decision could make it more expensive for the district to borrow money.
According to the report, the downgrade is a result of years of deficits and low cash reserves.
The downgraded bond rating comes as the district appears to have turned the financial corner. Saline's Board of Education recently passed a budget that, with an $800,000 surplus, is expected to increase the district's fund balance (cash reserve) to more than 5 percent of the general fund. The 2012-13 budget year ended with a surplus of $97.000 - the first surplus for the district in five years.
After the Board of Education approved the budget June 25, Assistant Superintendent for Finance Janice Warner was asked if healthier fund balances improve the district's bond rating.
"They do, but it generally takes a couple years for the bond raters to account for changes," Warner said.
Moody's noted the district's recent financial improvements as a strength, and also reported that continuing to improve the fund balance could help improve the bond rating. Reduction in the district's debt burden would also help the bond rating, Moody's said.
On the other side of the equation, contraction of the tax base or erosion of the demographic profile could hurt the bond rating. Deficits and dwindling fund balances would also negatively impact the bond rating.
The report also listed several strengths and challenges for the district. Among the strengths are a large taxbase with proximity to Ann Arbor, an affluent demographic profile, and the recent corrections to the budget. Among the challenges are limited flexibility to raise revenue, a trend of deficits and narrow fund reserves, and above average debt burden.