CHICAGO -- Moody's Investors Service said yesterday that the ratings of 60 Michigan school districts are in jeopardy in the wake of the state Legislature's passage this week of a bill that eliminates school operating property taxes as of next July.

Paul Devine, a vice president and manager of the Great Lakes region for Moody's, said the Legislature's action "introduced risk to bondholders" because it eliminated the existing funding mechanism for schools without providing an alternative.

Lawmakers passed the bill in a dramatic move to force long-sought property tax reform in Michigan. Gov. John Engler will sign the bill into law as early as next week, according to John Truscott, his spokesman.

State officials said they now have a year to come up with a plan to finance schools and cut property taxes. That plan is expected to be in place by July 1, 1994, the beginning of the schools' fiscal 1995 and the date when the elimination of the operating tax levy goes into effect, the officials said.

What will happen to the school ratings on Moody's list depends on that plan, Devine said.

"The Legislature has a certain time frame to come up with a program of funding education in the state," he said. "We'll be looking to monitor that process and make evaluations from there."

Moody's said the 60 ratings include 16 ratings on school debt that is qualified for the Michigan School Bond Loan Fund but that has higher ratings than the fund's current Al. The agency said those ratings are at risk of being lowered to Al.

The Moody's list also includes 44 ratings of non-qualified bonds, including six that are on limited tax debt.

The rating agency said that while the 44 ratings are exposed to "fiscal uncertainty," the six "face the most risk due to the absence of pledged debt millage and the need to be serviced from now-uncertain operating revenues."

Moody's also said the ratings on 330 school districts that are in the School Bond Loan Fund and carry the A1 rating are not expected to be impaired.

The bill eliminates about $6 billion of operating property taxes for school districts, but keeps the districts' debt service levies for unlimited tax general obligation debt intact.

Devine said that other local governments can also be affected by the Legislature's action because of a one-year property assessment freeze contained in the bill.

In addition, tax increment financing debt that depends on school operating property taxes for a percentage of the debt service could cause cities that pledged their limited tax general obligation on the debt to turn to other operating revenues to pay off that debt, Moody's said in a comment.

Joe O'Keefe, a director at Standard & Poor's Corp., said yesterday that Standard & Poor's needs more details on the bill and the plan to replace school operating revenues before it can assess the impact on the state and local governments.

"It is possible that when we get more details, we may consider rating changes or CreditWatch action," said.

Claire Cohen, executive vice president of public finance at Fitch Investors Service Inc., said yesterday that if the state comes up with a better way to finance schools, "it would be a positive for Michigan." On the other hand, she pointed out that if no plan is forthcoming and no money is made available to schools, "Clearly we're talking disaster."

State Treasurer Doug Roberts said yesterday that any concerns about the Legislature's action voiced by the rating agencies only "increases the pressure" to solve school funding in Michigan.

He said the Engler administration will not consider making any moves to assure bondholders of school limited tax debt or tax increment financing debt. saying. "We're not going to solve this plecemeal."

"I think this indicates that the Legislature must solve the school funding issue, and changing the way we finance school funding in the state is worth the risk, " Roberts said.

He said he was aware the state is hamstrung in how much it can raise because of constitutional limitations.

"The ultimate solution is state taxes or local option taxes or to go to the public with another constitutional amendment," Roberts said.

A proposed constitutional amendment that would have raised the state sales tax and equalized school funding was defeated by voters in June.

Public finance officials in the state said they were stunned by the state's unexpected action.

Glen Watson, director of public finance at Roney & Co. in Detroit, said the action may prohibit schools from issuing any tax notes or limited tax debt for the time being. However, if property taxes are reduced in the end, he said it could lead to greater issuance of school debt for capital projects.

Other officials questioned it insurance providers would insure Michigan school debt.

Scott Vanderwerp, a vice president of J.J.B. Hilliard, W.L. Lyons Inc. in Holland, Mich., said the fallout from the Legislature's action already has had an impact on a $900,000 10-year bond deal that was competitively bid by a school district in Kalamazoo yesterday.

"You usually see six or seven bidders. There were four." Vanderwerp said. "Some of the normal groups didn't bid on it because of this."

Richard Ciccarone, a senior vice president and director of tax-exempt fixed-income research at Kemper Securities Inc., said the legislation "leaves a hole in the fiscal stability of schools that has got to be filled rather quickly."

Ciccarone said, "It is fiscally imprudent to take away that percentage of revenue without replacing it."

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