WASHINGTON – Fitch Ratings assigned an "AA" rating to $320 million of Baltimore City Public Schools construction and revitalization program revenue bonds scheduled to be issued by the Maryland Stadium Authority later this month.
The series 2016A bonds, tentatively scheduled to be sold on a negotiated basis on April 20, will help finance the repair or replacement of up to 28 Baltimore school facilities over the next five years. Fitch gave the bonds a stable outlook in a five-page report released Thursday.
The bonds are backed by state education aid, state lottery revenue, city beverage container tax and casino rental revenues and other city gaming receipts, Fitch said. If needed, they will also be backed by city income tax receipts held by the state, it added.
The bonds are to be secured by funds deposited into the Baltimore City Public Schools (BCPS) construction financing funds from both city and state sources; Fitch called individual revenue sources for specific pledged deposits "exceptional."
Fitch originally rated the bonds on Dec. 23, but the expected sale date of January 20 was delayed. Moody's Investors Service also gave the bonds an "Aa3" rating in December.
In 2010, the city of Baltimore launched the 21st Century School Buildings Plan, an effort to renovate what officials called the city's "aging and inadequate public school buildings."
Education aid appropriated by the state will provide $30 million in pledged deposits on an ongoing basic beginning in fiscal 2017.
Though the Maryland Stadium Authority is a state corporation that generally issues tax-exempt bonds to construct stadiums, arenas and convention centers, Maryland House Bill 860, enacted and signed into law by the governor in May 2013, established the agency as the bond issuing authority for the 21st Century School Buildings Plan. The law also requires the city of Baltimore, the state of Maryland and BCPS to each provide $20 million in annual funding, which will total $60 million in annual funding toward school construction.
"Typically, school construction is funded by municipalities and states on a project-by-project basis," school officials wrote in a description of the plan. "Alternative financing for school construction … will allow the district to begin the process of updating buildings across the city to be healthy, safe and modern."
Bond sale proceeds collected by MSA are deposited into the Maryland Stadium Authority Financing Fund.
Pledged deposits for the Series 2016A bonds include a fixed $20 million amount from state lottery sales receipts, which will begin on an annual basis in fiscal 2016. Another $30 million in education aid will be provided on an ongoing basis in fiscal 2017. The city's pledged deposits must total $8 million in fiscal 2015 and 2016, and $10 million annually from fiscal 2017 through final maturity, which will come from beverage container taxes and gaming sources from the city's Horseshoe Casino.
Though the discretionary nature of lottery revenue generally limits credit levels, Fitch officials said Maryland's net lottery receipts is more favorable than other lottery-backed debt the credit agency rates. Maryland state statute caps Baltimore public schools debt at $200 million, excluding federally-qualified school construction bonds and lease revenue bonds.
In July, Fitch assigned a triple-A rating to $500 million in State of Maryland general obligation bonds, state and local facilities loan of 2015. That sale, which included $450 million in series A tax-exempt bonds and $50 million in series B taxable bonds, was given a stable outlook by Fitch.
The series 2016A bonds' tentative sale date of April 20 is six days before the city's Board of School Commissioners is scheduled to vote on the proposed school budget for 2016-17.
In February, Gregory Thornton, the chief executive officer of BCPS, said 2016-17 marks the first time spending has been flat in the department's five-year strategic plan.
"After the difficult budget season last year, [BCPS] has already cut district-wide costs significantly," Thornton said. "If funding is not increased, additional cuts will be inevitable and painful."
