On the heels of revelations that East Ramapo had a $30 million surplus after years of dire deficit predictions, Moody’s Investor Service has removed its “negative” outlook from the district’s poor bond rating. But Moody’s latest opinion was far from rosy for the school district, as the ratings agency preserved a near-junk bond rating status and portended a possible drop.
Meanwhile, the New York State Comptroller’s Office alerted the district on Jan. 2 that it would audit the district’s 2024-25 budget amid questions about the roots of the budget surplus after years of fiscal woes.
For Moody’s analysts, it seems, East Ramapo’s past is likely prologue. “While the improved reserves and liquidity provide the district with greater resources today, the school board’s historical management indicates the financial position will be gradually depleted over time,” the Dec. 5 opinion states.
Moody’s simultaneously reaffirmed the district’s Baa3 credit rating, which is one step above junk status.
“The Baa3 is the lowest investment grade rating we assign. It’s very risky from a municipal bond perspective,” Nicholas Lehman, vice president and senior analyst with Moody’s, said Thursday. “Most New York schools are rated AA3, which is six notches higher than East Ramapo is currently at.”
A one-step downgrade would put East Ramapo’s bonds at “speculative grade.”
Lehman said that’s possible for the troubled district “if the financial management that we’ve seen over the last 10 years continues.” While voters approved a 1% property tax hike for the current school year, Lehman said the ratings agency looks at patterns.
Does the fact that the district actually has a multi-million-dollar surplus help after years of a predicted “fiscal cliff” that would plunge the district into financial crisis?
“Despite this windfall that the district now has, that’s not a sign of fiscal responsibility either,” Lehman said in an exclusive interview with the USA Today Network. “A large surplus is highlighting its own kind of fiscal mismanagement.”
Lehman added: “To be that far off is just another kind of sign of fiscal challenges at the district.”
The Moody’s rating is specifically for the district’s outstanding general obligation unlimited tax bonds, which are secured by a promise to raise property taxes if necessary. East Ramapo has about $40 million in such debt.
The Moody’s move from a negative outlook for East Ramapo to having no outlook — a standard for a local government with large outstanding debt — came after an audit showed the district had a $30 million surplus in its 2023-2024 budget. The news was beyond unexpected, as state monitors and the former superintendent had been warning the school board of a multi-million-dollar deficit.
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As a result, New York State Education Commissioner Betty Rosa asked the New York State Comptroller’s Office for an audit of East Ramapo. On Jan. 2, the comptroller’s Division of Local Government and School Accountability sent a letter to East Ramapo Interim Superintendent Anthony DiCarlo announcing it would audit the 2024-2025 budget, “including historic budget estimates and prior operating results.”
Lehman declined to comment on Rosa’s recent interim order — before the surplus was revealed — for the board to increase the property tax levy by 4.38%, on top of the 1% increase voters had approved in June. It was a rare step that has been both championed and criticized in the community.
Rosa’s order, taken in response to a public-school parent’s appeal, brought the total 2024-25 tax levy up to the state’s tax cap of 5.38% for the district in this school year.
Lehman said Moody’s would not opine on the tax levy order. But he did weigh in on state oversight in general.
“Some residents would like to see more state intervention,” he said. “We don’t comment on what we’d like to see. We provide the ratings and credit analysis on the type of oversight that is there.”
Mercy Carabajo of Spring Valley, who has one sixth-grade son in East Ramapo schools, calls out her frustration with the school board during a May 28, 2024 special meeting.
Lehman, though, noted that the state legislation that empowered a state-appointed fiscal and education monitors in East Ramapo expires this year. “Generally the stronger the state oversight the better from a credit perspective.”
Moody’s report cited the district’s high dropout rate, “very low graduation rate,” large number of English language learners and poverty as social challenges that have fed a credit low rating.
But the Dec. 5 report pointed to some positives, including “short-term remediation” to lead levels in the water supply by installing water fountains filters.
But, Moody’s also flagged looming infrastructure issues the district faces; a 2023 Building Conditions Survey showed hundreds of millions of dollars worth of repairs were still needed to all district schools, even after myriad fixes using a huge investment of COVID-era federal funding.
The ratings agency continued to knock governance issues in its latest communication, citing the school board’s “history of unwillingness” to increase local taxes.
The board’s members are seen by many public-school families as favoring the private school community that send their kids to yeshivas. Only about 20% of the children who live within the district’s boundaries attend the public school system.
The ratings report referred to the district’s “challenging social and demographic profile.”
“The financial challenge this district has to deal with is more than others,” Lehman said. “In East Ramapo, there is this secondary challenge.”
Lehman pointed to the outsized cost of transportation. The district operates the most complex school transportation in the state outside NYC, providing “universal busing” to all kids to scores of private schools as well as more than a dozen public schools. Efforts to curb the extra busing service — which goes beyond what the state will reimburse — have failed.
“Some of those financial decisions … don’t seem to be in the best interest of the district given its challenges,” Lehman said.
Lehman said Moody’s is looking at the long-term path the district takes. He acknowledged there’s a new management team, as Interim Superintendent Anthony DiCarlo started a year-long leadership stint this past summer. “We’ll see how they put the budget together,” Lehman said.
This article originally appeared on Rockland/Westchester Journal News: East Ramapo Moody’s bond rating revised Comptroller probes surplus