Troubled Montgomery school system takes credit rating hit

MONTGOMERY, AL (WSFA) - The Montgomery Public School system is taking another hit as it works to stave off a potential loss of its accreditation.

The system, which is under state intervention, is now dealing with a fall in its credit rating. S&P Global has determined the system will drop two spots from AA status, the second highest available rating, to a BBB+ rating.

In simple terms, that means the rating went from indicating MPS has a very strong capacity to meet its financial commitments to a rating that indicates MPS merely has adequate capacity to meet those commitments and a likelihood that it will struggle financially in the future.

So what does a downgrade mean?  It can mean higher interest rates, making it more expensive for the system to borrow money.

S&P said its outlook of MPS is "negative" and that it "reflects our belief that [MPS'] finances and operations may remain at risk given the political gridlock between the board and the Alabama State Board of Education (ALDSE)."

The downgrade happened on May 7. That was before the cash-strapped system sold Georgia Washington Middle School to nearby Pike Road Schools for nearly $10 million.

S&P listed multiple reasons for the downgrade including MPS' failure to adopt a credible financial plan, declining student enrollment, and low reserve funds.

"We are certainly disappointed in this action by the S&P Ratings Service," MPS Superintendent Dr. Ann Roy Moore said. "However, we believe that the concerns they expressed are in areas that the board and the State Department of Education are aggressively addressing. We will continue to work on our budget issues in order to meet our obligations for a reserve and a balanced budget."  
New Alabama State School Superintendent Dr. Eric Mackey also reacted to the credit downgrade saying that he feels "very optimistic that the system's financial problems will improve in the future and their credit rating will eventually be restored."

Moore thinks the system's declining enrollment "may stabilize at the end of the 2018-2019 school year as the final class of students will be transferred from MPS to the Pike Road School System."

"The MPS intervention was, in part, based on the system's finances," Mackey added. "As we work diligently to address the concerns to keep MPS accredited, we will also address areas that will ultimately help the system's credit rating."

There's a 1-in-3 chance S&P could lower MPS' rating again within the next two years, putting even more budget pressure on the system if changes aren't made.

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