Carlsbad Municipal School District

• Issue Currency: United States of America Dollars
• Announcement Date: 18-Jun-2018
• News: Moody`s Investors Service has downgraded to Aa2 from Aa1 the rating on the State of New Mexico`s general obligation bonds and revised the outlook to stable from negative. This action affects approximate $260 million outstanding general obligation bonds. We have also downgraded to Aa3 from Aa2 the programmatic rating on the New Mexico School District Intercept Program, and to Aa3 from Aa2 the rating on the state`s only outstanding series of lease appropriation bonds. Moody`s maintains the Aa1 rating and stable outlook on the state`s senior lien transportation revenue bonds. This rating incorporates a number of credit strengths considered in our special tax methodology, including, but not limited to, the strong legal separation between the pledged transportation revenues and the state`s general fund. RATINGS RATIONALE The downgrade of the state`s general obligation rating to Aa2 is primarily attributable to the state`s extremely large pension liabilities, including both its direct obligation to the Public Employees` Retirement System (PERA) and its indirect obligation to the Educational Employees` Retirement System (EERS). The state provides K-12 school districts with essentially 100% of their operating funding. The need to assist districts in addressing their EERS pension liabilities represents a significant financial pressure for the state. That pressure is compounded by spending challenges associated with a large Medicaid caseload, a revenue structure more concentrated and volatile than most similarly-rated states, an economy that has lagged the nation`s, below-average wealth levels, and financial reporting practices which, while improving, are weaker than typical for a US state. The Aa2 rating also incorporates a number of strengths, including the state`s history of taking timely action to maintain budgetary balance, the rapid restoration of general fund reserves which had been depleted as a result of declining oil- and gas-related revenue, and the expectation that the state will maintain adequate reserves in the future. The state`s establishment of a Rainy Day Fund to capture future growth in oil- and gasrelated revenues should enhance budget discipline in periods of increasing revenue. The Aa3 rating on the lease appropriations bonds, one notch below the state`s general obligation rating reflects the essential nature of the leased asset, a state health facility located in Grant County, and the moderate legal structure, which requires appropriation of the lease payments used to pay debt service. The Aa3 rating on the school district intercept program, also on notch below the state`s general obligation rating, reflects our assessment of program level criteria related to state commitment and program history, as well as average to strong program mechanics. RATING OUTLOOK The stable outlook reflects positive recent economic trends, strong budget discipline demonstrated by the state following the decline in oil and gas related revenues in fiscal 2015 and 2016, and the restoration of general fund reserves to levels equal to or greater than historical levels. FACTORS THAT COULD LEAD TO AN UPGRADE - Sustained growth and diversification of the economy. - Significant progress in reducing direct and indirect pension liabilities. FACTORS THAT COULD LEAD TO A DOWNGRADE - Negative economic trends. - New declines in revenues associated with a reduction in reserves. - Increase in debt levels. LEGAL SECURITY New Mexico`s general obligation bonds are secured by the full faith and credit of the state and specifically secured by and paid from a statewide property tax levy without limit as to rate. The treasurer is required to keep the property tax proceeds separate from all other funds. The payment of general obligation bonds from other than ad valorem taxes collected for that purpose requires an appropriation by the legislature. If at any point there is not a sufficient amount of money from ad valorem taxes to make a required payment of principal of or interest on state general obligation bonds, the governor may call a special session of the legislature in order to secure an appropriation of money sufficient to make the required payment. PROFILE New Mexico is the 36th-largest state by population, at 2.1 million. Its state gross domestic product, $97.1 billion, is the 37th-largest. The state`s wealth levels are below average, with per capita personal income equal to 77.4% of the US level and a poverty rate among the highest for US states. METHODOLOGY The principal methodology used in the general obligation ratings was US States and Territories published in April 2018. The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2016. The principal methodology used in the enhanced ratings was State Aid Intercept Programs and Financings published in December 2017. P