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Duluth school district's bond rating improves

Moody’s Investors Service now claims the district’s creditworthiness is “investment” grade, rather than “speculative.”

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DULUTH — A high-profile credit-rating agency has a rosier view of Duluth Public Schools’ finances.

New York-based Moody’s Investors Service upgraded the school district’s rating from “BA1” to “BAA2,” a two-notch jump on the service’s scale designed to measure organizations’ long-term creditworthiness and a positive sign for the district’s finances.

The upgrade moves the district out of the “speculative” grade of potential borrowers into the middle of Moody’s “investment” grade. The higher rating could mean a lower interest rate if or when the district sells bonds, but, without any current plans to do so, it’s more of a feather in administrators’ caps and a sign of at least a modestly better balance sheet.

“Even though, at this moment in time, we don’t have any need to be selling bonds,” CFO Cathy Erickson said at a School Board committee meeting earlier this month , “just knowing that the financial condition that’s being recognized as a school district, moving forward, I think is just something to celebrate.”

Moody’s analysts indicated that a 2018 operating levy and federal COVID-19 aid lead them to raise the district’s rating.

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“The rating also considers the district's history of volatile financial operations, a long-term trend of declining enrollment and the need to make budget adjustments when federal aid is depleted,” agency staff wrote in an April 12 news release . “Governance was a key driver of the credit rating action considering the district's historic management strategy that led to difficulty adhering to budgets leading to a long period with narrow reserves. The district has made management improvements, which coupled with voter support for an increased operating levy and federal aid, has driven improved finances.”

School district finance staff chalked the change up to the district’s relatively steady enrollment and increasing cash reserves.

Duluth Public Schools had about $399,000 worth of reserves , or “unassigned fund balance," when Erickson took over in 2018, she told the News Tribune, and that amount rose to about $3.9 million last summer. District policy calls for reserves that total at least 8% of its yearly spending, a threshold of about $9.2 million this year.

“I think part of it, too, is that they are seeing the trend now,” Erickson said of the rating agency. “One good audit isn't going to be enough. But now that we've had three good audits — since I've been here, anyway — that we're seeing that improvement, and we're seeing activities that allow us to do better.”

You can reach Joe Bowen at 218-720-4172 or jbowen@duluthnews.com .

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Joe Bowen is an award-winning reporter at the Duluth News Tribune. He covers schools and education across the Northland.

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