Mars Area School District, PA General Obligation Bond Outlook Revised To Negative From Stable On Declining Reserves

CHICAGO (S&P Global Ratings) April 17, 2019--S&P Global Ratings revised its outlook to negative from stable and affirmed its 'A+' long-term rating and underlying rating (SPUR) on Mars Area School District, Pa.'s general obligation (GO) debt. At the same time, S&P Global Ratings assigned its 'A+' long-term rating with a negative outlook to the district's series 2019 A and B GO bonds.
"The outlook revision reflects our view of the district's trend of declining reserves, which have fallen to 9% of general fund expenditures from a high of 21% as recently as 2014, with possible plans to further draw them down over the next one to two years," said S&P Global Ratings credit analyst Robert Otter.
The 'A+' rating reflects our opinion of the district's:
  • Very strong income levels,
  • Sizable and very diverse property tax base with extremely strong wealth, and
  • Access to diverse employment markets in the Pittsburgh MSA.
These strengths are somewhat offset by, in our view, the district's:
  • Moderate-to-high debt profile,
  • Below-average amortization, and
  • High pension costs.
The negative outlook reflects our view of the district's plan to draw down reserves to levels we no longer consider to be strong. As recently as the end of fiscal 2014, the district's reserve levels were 21.2% of general fund expenditures, which we considered to be very strong, but the district has continued to draw them down, and is planning to further lower reserves over the next two years. If reserves fall below 8%, we will likely lower the rating.
Should reserves remain stable, coupled with continued positive budget results, we could revise the outlook to stable, considering the district's access to the Pittsburgh MSA economy, all else being equal.
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