Moody’s downgrades FCPS credit ratings for 2nd time in months. Here’s why
The financial services company Moody’s Ratings has downgraded Fayette County Public Schools for the second time since March in its credit ratings.
Moody’s says the district has $938 million in outstanding debt, and the firm once again expressed concerns over weak governance and budget management for FCPS.
In a May 11 report, FCPS’ issuer and general obligation unlimited tax ratings were downgraded from A2 to A3, meaning FCPS now has the seventh-highest rating level. FCPS’ lease appropriation rating dropped one notch from A3 to Baa1, the eighth-highest rating.
FCPS’ short-term ratings in these categories now fall into “Prime - 2,” which is a drop from Prime - 1. Ratings A2 and above are considered Prime - 1.
“We have placed the ratings under review for possible downgrade. The district has approximately $938 million in debt outstanding. Previously the outlook was stable,” the Moody’s report said.
“The downgrade of the ratings reflects the unexpectedly higher strain on financial operations than anticipated based on recent district disclosure regarding inaccurate financial reporting, which will materially limit financial flexibility and necessitate short-term borrowing to meet expenditures. Weak governance and budget management are key drivers of this rating action,“ the report said.
District spokesperson Miranda Scully said the downgrade was “not unexpected and reflects the general financial condition of the district.”
Moody’s evaluates the financial stability of companies and government entities. When an organization’s ratings fall, it means their credit profile has weakened, which can leave the agency paying higher interest rates when borrowing money while also hurting bonding capacity.
FCPS’ financial condition has worsened in recent weeks after district officials announced their finances had been misstated for nearly two decades, and they have less money in reserve than previously thought. Interim FCPS Chief Financial Office Kyna Koch said Monday if the district doesn’t get an estimated $110 million loan, it will not be able to make payroll in July.
As far as the Moody’s report, the A3 issuer rating balances the district’s highly limited financial position against its strong local economy, growing revenue base, and manageable leverage supported by dedicated property tax levies, the report said.
The limited financial position is the result of structurally imbalanced operations and weak fiscal controls that materially inflated reserve levels.
The district expects to release revised fund balance figures for fiscal year 2025 in the next two months that will show much lower reserves than previously reported, with a restated audit available in the fall, Moody’s said.
“The imbalanced operations and inaccurate financial tracking will likely result in near or full depletion of the contingency, unassigned general fund balance, by end of fiscal year 2026. The district maintains limited liquidity outside of the general fund that can support core operations,” the report said.
Management plans to issue a tax anticipation note in the next few months to cover around four months of expenditures before property taxes are received in the fall, it said.
“The district’s new financial manager aims to balance the fiscal 2027 budget, restore a 2% contingency, and improve fiscal policies and procedures,” said the report.
“Positively, per pupil state aid is increasing. However, reserves will remain highly limited for the next few years,“ the report said.
Moody’s will evaluate forthcoming disclosures including revised 2025 fund balance figures, fiscal 2026 projections and the fiscal 2027 budget, as well as the district’s ability to successfully execute its cash flow borrowing, which is unusual in the state, the report said.
The Fayette County Public Schools board will be asked to approve later this month a tentative general fund budget for FCPS’ 2026-2027 school year of $711.3 million.