Lake Washington School District Credit Rating Under Review

Credit-rating agency Moody's is considering a downgrade for Lake Washington School District's top-notch reputation for repaying debt, citing uncertainty in Washington, D.C.'s debt limit crisis as the culprit.

The school district joins several other Aaa-rated public agencies in King County under credit-rating review as Congress tries to raise the U.S. debt limit in order to repay obligations. While no downgrade has yet occurred, Moody's spokesman David Jacobson warned that could change if the U.S. defaults on its obligations. 

"We need to see what is going to happen on the sovereign level," he said. "If Aug. 2—that's 'D-Day'—passes and if there is a default, we will determine if a change is needed ... That's a lot of ifs, but it could happen."

Janene Fogard, deputy superintendent at LWSD, said the school district does not anticipate the review to be an issue so long as the debt-limit crisis is resolved.

“Moody’s continues to rate Lake Washington School District bonds at the Aaa level which is excellent,” Fogard said in a prepared statement. “The recent notice of review from Moody’s reflects issues at the federal level and was not precipitated by any action on the district’s part. The district’s Aaa rating reflects the continued financial soundness of the district, represented by its healthy fund balance, stable enrollment, and sizable economic base. Should the federal debt limit issue be satisfactorily resolved, we don’t expect any further action by Moody’s.”

If Moody’s actually lowers the Aaa status for the Lake Washington School District, it could affect the interest rate at which money is borrowed, Fogard said.

But if a downgrade occurs, she added, there is an option for the district to buy insurance for when it actually issues debt, typically in the form of a bond.

That means that while the overall credit rating is lower, the insurance can help a specific bond measure be more financially appealing to district taxpayers.    

The cost, though, for that insurance depends on what type of debt a government is issuing, its credit and interest rates at that time, she added.

Moody’s informed the district by email on Thursday of a possible review and downgrade, should federal lawmakers fail to reach a compromise on the debt ceiling, she said.

Even if Moody’s begins the process to downgrade municipal governments and school districts, it would most likely be done after a review with local officials, she added.

“It would still be a process of Moody’s looking at each individual entity,” she said. “I think it’s a little bit of wait and see.”

Moody's is one of a handful of credit rating agencies relied on by investors that are important to public agencies like LWSD because they could affect interest rates it must pay to lenders, increasing the cost of borrowing. An "Aaa" Moody's rating is the highest given by the company.

Along with the LWSD, the Bellevue, Issaquah, Seattle and Lake Washington school districts, the University of Washington, King County and the cities of Seattle and Bellevue are also under review.