BPS investor rating slips amid slowed enrollment, COVID-19

By: Tiffany Esshaki | Birmingham - Bloomfield Eagle | Published April 21, 2021

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BIRMINGHAM — After an adjustment to their assessment formula, Moody’s Investors Service has downgraded the Birmingham Public Schools district from an Aa2 to an Aa1 rating.

The slip impacts the district’s $213.4 million in outstanding general obligation unlimited tax debt. That’s because the rating reflects the district’s ability to repay debt and obligations.

The change in standing might come as a surprise to some, considering that the district serves one of the most affluent cities in the state, which sits in southeastern Michigan, which holds an Aa1 stable rating, and specifically, Oakland County, which has an Aaa stable rating.

But Moody’s explained that those factors, including the district’s healthy operating fund and liquidity, actually played a role in the diminished score.

“These positive credit factors are balanced against the district’s moderately declining student enrollment, as well as its above-average leverage comprised of outstanding debt and unfunded retiree benefit liabilities,” Moody’s stated in a press release.

The service said, though, that nothing has changed with BPS’s finances; the standards and procedures used by Moody’s to rate districts had been adjusted, leading to the new rating.

“Birmingham Public Schools was downgraded one notch, from Aa1 to Aa2 — our third highest rating — on April 6, concluding a review we announced Jan. 26, 2021, when we applied a new rating methodology to all our rated K-12 school districts in the U.S.,” said David Jacobson, the vice president of communications for Moody’s.

Jacobson added that the Bloomfield Hills Schools district was affirmed at Aa1 during this round of ratings.

In response to the downgrade, BPS released a statement to families in the district.

“A factor in this change included the moderately decreasing student enrollment, average fund balance, outstanding debt and unfunded retiree benefit liabilities,” the BPS Board of Education said in an email. “Moving forward, the district will continue to focus on increasing enrollment, reducing deficits and building upon programming that increases revenue to improve fund balance.”

To that end, the board said BPS has spent the last two years addressing budget concerns and slashed $3.5 million from the budget during the 2018-19 school year.

Then the pandemic hit.

“COVID mitigation measures that increased spending were the focus this fall and have begun to level out as we head into the end of the 2020-21 school year,” the statement continued. “Additionally, revenue-generating programming was halted during the pandemic in many areas and is now beginning to ramp up once more, with anticipated growth as we move into a more stable environment this fall.”

Budget reports are made quarterly and are reviewed during board meetings and study sessions. Additional information regarding BPS finances can be found under the Transparency Report, linked on the district’s website, birmingham.k12.mi.us.

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