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Sacramento City Unified Board President Tara Jeane, center, listens as Mike Fine, CEO of the Fiscal Crisis and Management Assistance Team, reviews the district\u2019s financial situation during a meeting at the Serna Center on May 7. The state entity projects SCUSD will run out of money in February.<\/p>\n
NATHANIEL LEVINE<\/p>\n
nlevine@sacbee.com<\/p>\n
One of the nation\u2019s three major credit rating agencies has downgraded Sacramento City Unified School District\u2019s bond rating, citing the district\u2019s poor budget management and uncertainty over its plans to rebuild reserves.<\/p>\n
Fitch Ratings<\/a>, a Manhattan- and London-based credit ratings agency, downgraded SCUSD\u2019s bond rating from A+ to BB-, moving the district into speculative-grade territory with elevated vulnerability to default risk. In Fitch\u2019s report published on Monday, the agency described the district as having \u201ca history of inadequate budget management practices.\u201d<\/p>\n The district\u2019s bond rating now sits at junk status, meaning BB+ and below under Fitch Ratings\u2019 scale.<\/p>\n The downgrade reflects the district\u2019s \u201cineffective budget management and a sharp rise in spending relative to resources beginning in fiscal 2025,\u201d the report said. The agency also noted it expects reserves to be \u201cnearly depleted by fiscal year-end 2026 (June 30),\u201d adding that the district\u2019s thin liquidity increases the risk of state receivership and the need for emergency loans.<\/p>\n Divya Bali and Karen Ribble, directors at Fitch, wrote that the agency\u2019s rating reflects the general credit quality of an issuer.<\/p>\n \u201cState control could improve the district\u2019s credit quality,\u201d Bali and Ribble wrote in an email on Wednesday. \u201cWe will monitor the district\u2019s fiscal health and may incorporate the benefits, if any, of state control if that should be the outcome.\u201d<\/p>\n In Monday\u2019s report, Fitch pointed to the Fiscal Crisis and Management Assistance Team\u2019s grim December analysis that found the district often weakened the budget by starting non-budgeted contracts before receiving proper approval, including contracts for special education services.<\/p>\n The development came as SCUSD scrambles to close an unprecedented $170 million budget deficit. The district had identified $82 million in projected savings as of April 16<\/a>, but many of those were one-time cuts rather than ongoing reductions. A state financial agency projects<\/a> SCUSD could run out of money soon after 2027 begins, potentially triggering a state takeover.<\/p>\n The district uses bond funding to modernize its school buildings. Voters most recently approved Measure D<\/a>, $543 million bond proposal, in 2024.<\/p>\n Chris Ralston, SCUSD\u2019s assistant superintendent of facilities, said the district does not expect an immediate impact by the downgrade on projects already launched through the district\u2019s bond program.<\/p>\n \u201cThe district currently has sufficient bond proceeds on hand to continue funding projects that are already planned and in progress over the near term,\u201d Ralston wrote in an email on Tuesday.<\/p>\n Ralson added that the rating is not the only factor determining future bond issuances, but part of a broader mix of considerations, including market conditions, investor demand and interest rates. Still, he noted the lower rating could require the district to do more to secure financing for future projects.<\/p>\n In a recent SCUSD meeting, Ralson discussed asking voters to approve a bond measure<\/a> to help fund its facilities consolidation and modernization plans. When the district planned Measure D in 2024, it expected to make its next bond request to voters in 2028.<\/p>\n \u201cGenerally, a lower rating can require additional work to ensure future financing remains cost-effective and favorable for taxpayers,\u201d Ralston said.<\/p>\n Related Stories from Sacramento Bee<\/p>\n
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