Upper Moreland School District recently had its issuer rating and general unlimited tax upgraded by Moody’s Investors Service for the district’s healthy financial position, with strong liquidity and substantial reserves.

From Wednesday’s press release:

“Moody’s Investors Service has assigned a Aa1 rating to Upper Moreland Township School District, PA’s approximately $8.72 million General Obligation Bonds, Series of 2023 and $9.13 million General Obligation Bonds, Series A of 2023. Concurrently, Moody’s has upgraded the district’s issuer rating to Aa1 from Aa2. We have also upgraded all of the district’s outstanding parity general obligation unlimited tax (GOULT) and general obligation limited tax (GOLT) debt to Aa1 from Aa2. The pledge supporting the majority of the district’s rated debt is limited tax based on the limited ability of Pennsylvania school districts to increase their property tax levy above a preset index.

As of June 30, 2022, the district has roughly $62.7 million of debt outstanding.  

RATINGS RATIONALE

The district’s Aa1 issuer rating incorporates its healthy financial position, with strong liquidity and substantial reserves. The district has been able to produce healthy operating margins over the last several years given increased property tax rates and conservative expenditure management. The rating also considers the district’s close proximity to Philadelphia, about 10 miles north of the city.  Enrollment trends continue to strengthen, and charter pressure is minimal. The Aa1 rating also incorporates the district’s slightly higher than average leverage for compared to similarly rated peers, though the district does not have plans for material new debt in the near term, so overall leverage and fixed costs should remain manageable.  

Strong governance is a key credit strength and a driver of this rating action; the district has adhered to strong budget management controls, enabling material growth of fund balance over the last several years. The district has also initiated an OPEB trust as well as a debt service reserve.  

The absence of distinction between the district’s issuer rating and the Aa1 rating on the district’s GOULT debt is based on the district’s general obligation full faith and credit pledge.  

The absence of distinction between the district’s GOULT and GOLT ratings reflects Pennsylvania school districts’ ability to apply for exceptions to the cap on property tax increases in order to cover debt service and the Commonwealth’s history of granting such exceptions.

RATING OUTLOOK

Moody’s does not typically assign outlooks to local government issuers with this amount of debt outstanding.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

–     Sustained, material increase in fund balance-     Substantial growth in the district’s tax base and wealth and income levels

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

–     Material decline in the district’s tax base and deterioration of wealth and income levels-     Failure to maintain structurally balanced operations resulting in significant declines in reserves or cash position-     Substantial increase in the debt burden beyond what is currently anticipated

USE OF PROCEEDS

Series of 2023 proceeds will be used to currently refund the district’s outstanding General Obligation Bonds, Series of 2018. The Series A of 2023 bonds will be used towards renovations and improvements to existing school facilities owned by the district.  

LEGAL SECURITY

The bonds are general obligations of the district, backed by the district’s full faith credit and taxing power.

Other than the district’s Series A of 2017 bonds, all of the district’s rated debt is backed by its GOLT pledge, which is subject to the limits of Pennsylvania’s Act 1. The district’s Series A of 2017 bonds are backed by its GOULT pledge, as the bonds were issued to refund debt that was incurred prior to the implementation of Act 1 in 2006.

PROFILE

The district is located in Montgomery County (Aaa stable), about 10 miles north of Philadelphia (A2 stable). The district operates two elementary schools and two middle / senior high schools, with enrollment of 3,511 as of the 2023 school year.”