Fayette County Schools, Kentucky, downgraded two notches to A2

The Fayette County School District, Kentucky's issuer and general obligation unlimited tax ratings were downgraded two notches to A2 from Aa3 by Moody's Ratings, which cited the district's narrowing financial position. It also downgraded the school's lease appropriation rating to A3 from A1.

Moody's revised the outlooks to negative from stable.

The district has about $938 million of debt outstanding.

Fayette County School District's financial position is materially below its projections from late fiscal 2025, Moody's said in a report Wednesday.

The district suffers from weak governance and budget management, the rating agency said.

Its available fund balance sank to 4.8% of revenue in fiscal 2025. "Reserves and liquidity declined significantly in fiscal 2024 and 2025 due to growth in salary and special education costs that were not fully offset by increases in local tax revenue or state aid," Moody's said.

Fiscal 2026 results are moving in a positive direction after budget cuts, with officials expecting the year to end with a balanced budget, Moody's said. "Management aims to rebuild reserves in the following years through strict expenditure management and continued increases in the property tax levy by the 4% maximum allowed under state statute, supported by the district's strong tax base growth."

Per pupil state aid is also increasing and the county is seeing slow but steady increases in enrollment. However, Moody's expects reserves to remain limited in the next few years.

The district benefits from a growing and diverse economy that serves as a major economic center of the state, Moody's said. It also benefits from modest leverage and fixed costs and a lack of additional borrowing.

The Fayette County Board of Education is rated AA-minus by S&P with a negative outlook.

Fayette County Public Schools didn't immediately respond to a request for a comment.