S&P cuts Sacramento City Unified bond rating, warns of further downgrade
S&P Global Ratings, one of the nation’s leading credit rating agencies, downgraded Sacramento City Unified School District’s underlying bond ratings earlier this month amid the district’s ongoing budget crisis, warning that the ratings could be cut again within a year.
The development came as the district is working to close an unprecedented $170 million deficit and avoid state receivership, which would place the district under strict oversight while any emergency loan and interest are repaid.
S&P Global Ratings downgraded the district’s underlying rating on its California general obligation bonds to BBB from A- and its lease-revenue bonds to BBB- from BBB+, placing the bonds in the “adequate capacity” category and at the lowest investment-grade level, respectively.
The downgrade reflects the agency’s belief that the district’s general fund and reserves have deteriorated quickly because the board failed to make timely budget cuts and increased ongoing spending without matching revenue growth, the agency said.
“The outlook is negative,” the agency wrote in its June announcement.
“We could lower the rating further if the district’s structural imbalance leads to sustained deficit reserves, without a credible plan to restore in a reasonable timeframe, and an inability to make timely debt service payments on its GO (general obligation) or lease revenue bonds outstanding.”
The agency added that it could revise the outlook to stable if the district continues making the budget cuts needed to balance its operations and rebuild reserves.
S&P’s downgrade also follows a move by Fitch Ratings, another leading U.S. credit rating agency, which downgraded SCUSD’s bond rating from A+ to BB-, pushing the district into speculative-grade territory in May.
“State control could improve the district’s credit quality,” Divya Bali and Karen Ribble, directors at Fitch, said in May. “We will monitor the district’s fiscal health and may incorporate the benefits, if any, of state control if that should be the outcome.”
The school district uses bond funding to finance facilities construction, and changes in the rating can affect borrowing costs.
The district’s efforts to find long-term budget savings have made uneven progress, with its business office’s latest projection showing a cash crunch by November and deficits growing to nearly $284 million in 2026-27 and nearly $510 million by 2028-29.
