Low general fund reserve prompts Aspen School District credit rating downgrade

Moody’s Investor Services put the Aspen School District (ASD) on notice with a credit rating downgrade due to the district’s low general fund reserve balance.

Moody’s, which rates the credit of institutions, met with district leaders in April to discuss the district’s financial situation before delivering a slight credit downgrade. It rates institutions on a scale of A to C, with multiple subcategories such as Aa, Baa, Caa, and more. Moody’s downgraded ASD from Aa1 to Aa2 — far from a sign of financial instability but still a warning that the district must address its dwindling reserve balance.

“(The Aspen School District) is supported by a very strong local economy with an affluent base and strong voter support for public education,” the Moody’s credit opinion states. “Despite strong voter support and various supplemental revenue sources, the district has experienced a multiyear trend of deficit operations and has allowed available fund balance in the general fund to decline to a very narrow 2% (excluding restricted Taxpayers Bill of Rights Funds).”

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The highest rating an institution can receive is Aaa. Below that is Aa1 then Aa2. Institutions with Aa- ratings are “judged to be of high quality and are subject to very low credit risk,” according to Moody’s. The modifier 2 indicates a “mid-range ranking.” 

The Moody’s rating was more of a warning sign, especially since the district has long been aware of its low reserve balance, Assistant Superintendent of Business Mary Rodino said.

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“It wasn’t a total surprise, but I’m happy that we were already addressing it and had a plan because it made it a little easier to have that discussion with Moody’s,” she said. 

But the district’s reserves are still in a precarious position. The school district’s reserve balance decreased by about 75% in the past five years, from about $8 million to about $2 million. It was largely due to emergency pandemic upgrades, curriculum updates, and salary increases.

The total reserve balance, including the state-mandated TABOR reserve, is 6% of the school district’s general fund. That is far below her recommendation of 20-30%, which many state sources would consider healthy, she said.

She first alerted the ASD Board of Education of the district’s low reserve balance in November when an additional tax became available to the district as a result of its switch to local funding in fiscal year 2023-2024. The board approved collecting the additional $1.25 million in taxes annually, which will specifically go toward building back the district’s reserve balance. 

During a May 15 school board meeting where she and ASD Controller Max Marolt introduced the 2024-2025 budget, Rodino said the district will create a cost savings task force in the fall to rebuild its reserves.

The task force partially came out of recent negotiations with the Aspen Education Association, the district’s teachers’ union. While discussing salary increases and the district’s financial situation, she said union leaders expressed interest in helping identify cost savings across the district in the next fiscal year, which begins July 1.

“We want to really look at where expenses have gone up in the last few years. We spent money on curriculum, we know we had money we had to spend after COVID, every school did,” she said. “But we want to now look at some of those initiatives … look at all the curriculum purchases, are we still using them? Let’s look at software purchases related to curriculum — are we still using them?”

She expects it will take the district about five years for the reserves to reach 20% of the general fund. The district can request another evaluation from Moody’s at any time, but she said it will likely wait while it works to rebuild that balance.

But if the district issues any new bonds, Moody’s will rate the institution again. The school board has discussed the potential of a new bond to pursue more affordable housing for its staff for months and is expected to vote on whether to pursue a bond on the November ballot during its final meeting of the 2023-24 school year on June 5. The board initially discussed a $175 million bond question but after hesitancy from voters may reconsider a lower number.

Lack of affordable housing for staff was another reason for the Moody’s rating, according to the credit opinion obtained by The Aspen Times.

“The credit profile of Aspen School District is supported by Aspen’s highly-affluent economy, anchored by world-renowned Aspen and Snowmass Ski Resorts … Property value appreciation has accelerated in recent years due to strong demand in the area, including a 58% increase in assessed valuations for fiscal year 2024 to $5.5 billion,” the opinion states. “However, this economic strength and significant rise in property values presents challenges related to cost of living and housing affordability for district staff, which makes it more difficult for the district to attract and retain teachers, and subsequently increases the operating costs of the district.”

Lucy Peterson covers education and Snowmass for the Aspen Times. She can be reached at 970-429-9152 or lpeterson@aspentimes.com.