'The outlook is stable': What an outside review shows about Akron Public Schools' finances

Akron Public Schools received its first bond rating in recent history this week, receiving an A rating from Standard & Poor's.

The rating will help determine the interest rates the district receives as it prepares to take on $40 million in debt for the $61 million project to build a new school in Kenmore to house Pfeiffer Elementary and the Miller South School for the Visual and Performing Arts.

The A rating is "very, very, solid," Chief Financial Officer and Treasurer Steve Thompson told the board this week. He said they were "dinged" on one condition — that the district does not have an external funding source other than its general fund designated to pay off the debt.

"If we had a bond issue with a voted exterior millage to support it, we would have been one grade higher," he said.

The district did not receive a rating for the community learning center projects because that debt is held by the city of Akron. The school district transfers about $3 million a year to the city to offset that debt, but otherwise has not had any debt of its own in years.

Ryan Pendleton, executive director of the North Coast Shared Services Alliance and the district's former treasurer, said the A rating is in line with most districts in Ohio.

School districts in Ohio, he said, have state funding that is used as collateral, which Wall Street views favorably.

Only a handful of districts are rated the top tier AAA or AA, he said.

"The spread between interest rates between those are not that great," Pendleton said.

If the district went to the bond market immediately, he said, it would likely receive an interest rate of 5% to 5.3%.

The rating process also provided a rare deep dive from an external source into the district's finances, something useful for voters as the school board contemplates a levy next year.

The report from S&P's states "the outlook is stable."

"In our view, credit strengths include participation in a broad and diverse economy, a low debt burden, and good financial management, the last of which has allowed the district to operate without a new operating levy for more than 10 years," it says. "We believe these strengths provide uplift to the credit profile, offsetting a weaker economy, including below-average wealth and income levels, and declining enrollment."

The debt payment on the Kenmore building at an estimated $3 million a year will be less than 1% of the district's general fund expenditures each year, the report noted.

The report also reflects the district's five-year forecast, which shows the district operating at a deficit and cutting into its reserves in fiscal year 2025, but that a levy request is planned. The success or failure of a levy request could impact the district's bond rating moving forward.

"In our opinion, failure to effectively manage the levy cycle or gain voter support could lead to rating pressure in the future, particularly given the district's weaker economic profile," the report said, noting that significant enrollment declines could also impact the bond rating if the necessary expense adjustments are not also made. It notes that the district already committed to cutting $15 million. Those cuts have not actually been made yet, but district leaders have said they expect to achieve those savings through attrition.

Even if the district were to take on more debt to rebuild North High School, the overall debt burden would still be low, the report states. District leaders have discussed asking voters for a permanent improvement levy that would offset the debt for that project, which would cost over $80 million, with estimated debt payments of $5 million a year with interest.

"All else equal, we could raise the rating if economic metrics, including enrollment, were to significantly improve," the report states.

Contact education reporter Jennifer Pignolet at jpignolet@thebeaconjournal.com, at 330-996-3216 or on Twitter @JenPignolet.

This article originally appeared on Akron Beacon Journal: Bond rating provides external review of Akron Public Schools' finances