Press Release Details
Press Release Message
Press Release
San Francisco (May 22, 2024) — San Francisco Unified School District (SFUSD) Superintendent Dr. Matt Wayne issued the following statement today regarding a change in the district’s general obligation bond rating by a credit rating agency that publishes financial research and analysis on stocks, bonds, and commodities.
“SFUSD has had an excellent track record for the past two decades of delivering bond-funded capital projects on-time and on-budget. General obligation bond tax rates have always been lower than what was presented to voters in the bond measure at election time. Moody’s Ratings (“Moody’s”) has downgraded SFUSD’s general obligation rating to A1 from Aa3 and issuer rating to A2 from A1. In addition to Moody’s, there are two other credit rating agencies that rate SFUSD’s general obligation bond program, S&P Global Ratings and Fitch Ratings, which may also review the district’s ratings. We understand that these agencies are obligated to review our complete financial picture when assigning bond ratings, and that the rating change reflects the financial challenges we face as a district. We appreciate the diligence of the agencies and are actively engaging with them to share key updates regarding the district’s budget balancing solutions. This ratings downgrade is unrelated to SFUSD’s prior bond performance and debt repayment, and maintains SFUSD at an investment grade rating, messaging to investors that our bond program is strong.”
About Bond Ratings
Credit rating agencies assign bond ratings as a way to measure creditworthiness of a bond and the ability of an issuer (in this case, SFUSD) to repay its bond debt service. Rating agencies assign a letter grade. AAA ratings are the highest ratings offered by all rating agencies, though the ratings systems differ slightly from agency to agency.To assign bond ratings, each agency thoroughly evaluates the District’s complete financial picture. Bond ratings are used by investors to determine the relative risk associated with investing in the district’s bonds. A lower rating typically corresponds with higher interest rates at the time of a bond sale. Ratings within any ‘A’ range are considered investment grade, and the updated rating maintains the District in this category.
According to Moody’s, “The downgrade to A2 is driven by the district’s limited financial flexibility moving forward given that expenditure growth is projected to outpace revenues resulting in very low balances.” In addition, “The stable outlook incorporates management's ongoing progress toward closing out year budget gaps and our expectation that reserves and liquidity will remain adequate.”
The downgrade is not related to prior activities of SFUSD’s bond programs or bond debt repayment history. SFUSD maintains an aggressive debt service paydown schedule and works directly with the San Francisco County Assessor’s Office and Controller’s Office to ensure that taxpayer funds associated with voter approved bond authorizations are directly applied to general obligation bond debt service.
"These are challenging times for school districts both in California and around the country, and the rating change reflects the financial challenges that the district faces over the next few years,” said David Olson of Backstrom, McCarley, Berry, and Co., SFUSD’s third party financial advisor. “The good news is that the district's bonds remain highly rated, that tax-exempt interest rates remain relatively low, and that at this point I wouldn't anticipate the district having any problems in accessing the bond market to fund its important facility needs moving forward."
Budget Balancing Solutions
In response to SFUSD’s structural deficit, in December 2023 the Board of Education adopted a Budget Balancing Solution Plan with the 2023-24 First Interim Report that included unrestricted general fund one-time reductions, $103.1 million of ongoing reductions for 2024-25, and an additional $88.8 million of ongoing reductions for 2025-26. In addition, the district is engaged in a Resource Alignment Initiative which has outlined five specific focus areas to bring the district to fiscal stability: 1) Create a New Staffing Model, 2) Restructure Central Office, 3) Explore Generating Revenue from District Properties,4) Invest in Priority Districtwide Programs, and 5) Create a New Portfolio of Schools.
On May 3, 2024, because SFUSD is still in the process of implementing its plan to resolve deficit spending, SFUSD received notice from the California Department of Education (CDE) that it revised the certification of SFUSD’s March budget report from “Qualified” to “Negative.” According to the CDE, “While additional steps are needed to improve SFUSD’s financial systems, we acknowledge progress is being made that will lead to improved decision-making and the long-term fiscal sustainability of the SFUSD.” In 2022, CDE appointed two state fiscal experts to support the district in fiscal stabilization. With this updated certification, the fiscal experts move to fiscal advisor status and can directly engage in any district operation deemed counter to fiscal stability.
District staff and state fiscal advisors will work together to continue implementing budget-balancing solutions and reporting on the district’s actions. The immediate next steps are to submit a third Interim Budget Report by June 11, respond to requests from the CDE by June 30, and submit a Board-approved budget to the state by July 1.
The district expects bond ratings to improve once the budget-balancing solutions are in place, which may precede the next SFUSD bond sale.
2024 General Obligation Bond
On May 14, 2024, the SF Board of Education unanimously approved a resolution to place a general obligation bond on the Nov. 5, 2024 San Francisco ballot. A recent report from the Facilities Division identified significant building improvement needs in schools across the district. General obligation bonds provide SFUSD schools with funds to address critical facilities improvements and are the only source for the school district to make these necessary capital upgrades. SFUSD sold the last of its remaining bond authorization in 2022, which means that the district needs to go back to voters with a new bond measure to address urgent and critical infrastructure needs. The new measure requires a 55% voter approval, and financial modeling by the district’s financial advisor indicates that tax rates for San Francisco taxpayers will not increase, as the bond sales will be timed with paydown of prior debt service.
###