Crosby Independent School District, TX Note Rating Lowered To 'A-' On Rapidly Deteriorating Reserves; Outlook Negative

CENTENNIAL (S&P Global Ratings) Dec. 6, 2018--S&P Global Ratings lowered its 
underlying rating on Crosby Independent School District (ISD), Texas' general 
obligation and maintenance tax notes to 'A-' from 'AA-'. At the same time, S&P 
Global Ratings removed the rating from CreditWatch where it was placed on 
Sept. 28, 2018, with negative implications. The outlook is negative. 

"The downgrade reflects the district's rapid deterioration of reserves 
stemming from overspending, under-budgeting, and an error in the audit that 
led to a negative prior period adjustment and the depletion of reserves," said 
S&P Global Ratings credit analyst Benjamin Burrows. "The negative outlook 
reflects that while the new administration has taken strong steps to stabilize 
and improve the district's financial situation, the risks associated with a 
lack of reserves and uncertain liquidity over the next two years present 
additional downward pressure to the rating."

The bonds are secured by ad valorem taxes levied annually against all taxable 
property located within the district, without legal limitation as to rate or 
amount. The maintenance tax notes are secured by the district's levy of direct 
annual ad valorem tax levied for maintenance purposes by the district on all 
taxable property within its borders.

The rapid deterioration of reserves in fiscal 2017 resulted in a negative 
unassigned fund balance and limited liquidity. New management identified 
several issues pressuring the 2018 fiscal year that would result in worse 
budgetary performance than 2017 and quickly responded by issuing bonds, $10 
million of which was used to reimburse the general fund for capital projects.  
Although fiscal 2018 is projected to continue with a negative fund balance, 
management tightened expenditures, primarily through staff reductions, in 
fiscal 2019, which could produce a year-end surplus.