Fitch Ratings has downgraded the Sacramento City Unified School District’s credit rating to junk status as the district struggles to close a $170 million budget deficit and avoid a state takeover. The agency lowered the district’s rating from an “A,” considered high credit quality, to “BB,” which is classified as speculative or junk territory. This downgrade indicates the district is now viewed as a much riskier investment. The decision followed a report from the Fiscal Crisis and Management Assistance Team, a state organization that assists districts in budget emergencies. The report warned that the district would run out of money by the end of June. Fitch stated, “The district’s fiscal distress has stemmed primarily from a history of poor budgetary oversight and overspending, weak management practices, and an inadequate response to budgetary challenges.” Kelly Brothers, KCRA 3’s money expert, explained the implications of the downgrade. “The easiest way to think is like our personal credit rating. If you want to borrow money for a house or a car, if you got that credit rating up there at 700, you’re going to do OK,” Brothers said. “You’re going to be able to borrow money at a decent rate. If your credit rating has slipped, that means your credit is at risk. So if you can get more credit, they’re going to charge you more because you’re a credit risk.”The Fitch report also warned that the district’s rating could drop further unless the board takes a loan from the state and surrenders control of the district. Earlier this week, the president of the district’s board of education released a statement addressing the possibility of seeking a state loan. “While asking the state for a loan would provide financial support, state receivership also includes the loss of local input on the cuts that we have to make regardless,” the statement said in part. The district may receive additional funding due to the updated state budget, but it remains unclear how this will impact its finances. KCRA 3 reached out to the school district for comment but has not yet received a response. Fitch Ratings is an independent entity owned by Hearst Television, KCRA’s parent company. See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter | Find us on YouTube here and subscribe to our channel

SACRAMENTO, Calif. —

Fitch Ratings has downgraded the Sacramento City Unified School District’s credit rating to junk status as the district struggles to close a $170 million budget deficit and avoid a state takeover.

The agency lowered the district’s rating from an “A,” considered high credit quality, to “BB,” which is classified as speculative or junk territory. This downgrade indicates the district is now viewed as a much riskier investment.

The decision followed a report from the Fiscal Crisis and Management Assistance Team, a state organization that assists districts in budget emergencies. The report warned that the district would run out of money by the end of June.

Fitch stated, “The district’s fiscal distress has stemmed primarily from a history of poor budgetary oversight and overspending, weak management practices, and an inadequate response to budgetary challenges.”

Kelly Brothers, KCRA 3’s money expert, explained the implications of the downgrade.

“The easiest way to think is like our personal credit rating. If you want to borrow money for a house or a car, if you got that credit rating up there at 700, you’re going to do OK,” Brothers said. “You’re going to be able to borrow money at a decent rate. If your credit rating has slipped, that means your credit is at risk. So if you can get more credit, they’re going to charge you more because you’re a credit risk.”

The Fitch report also warned that the district’s rating could drop further unless the board takes a loan from the state and surrenders control of the district.

Earlier this week, the president of the district’s board of education released a statement addressing the possibility of seeking a state loan.

“While asking the state for a loan would provide financial support, state receivership also includes the loss of local input on the cuts that we have to make regardless,” the statement said in part.

The district may receive additional funding due to the updated state budget, but it remains unclear how this will impact its finances.

KCRA 3 reached out to the school district for comment but has not yet received a response.

Fitch Ratings is an independent entity owned by Hearst Television, KCRA’s parent company.

See more coverage of top California stories here | Download our app | Subscribe to our morning newsletter | Find us on YouTube here and subscribe to our channel