OREANDA-NEWS. S&P Global Ratings lowered its long-term rating and underlying rating (SPUR) on Plum Borough School District, Pa.'s general obligation (GO) debt three notches to 'BBB' from 'A'. The outlook is negative.

The rating action reflects S&P Global Ratings' opinion of the district's failure to restore structural balance, resulting in a significant deterioration of financial performance and the depletion of reserves.

At the same time, the rating service assigned its 'BBB' long-term rating and negative outlook to the district's series 2016A and 2016B GO bonds.

"We believe there is a one-in-three chance we could lower the rating within the two-year outlook period. If performance for fiscal 2016 were to result in worse-than-projected outcomes, leading to added downward pressure on finances, we could lower the rating. We acknowledge the district has taken steps to close the budget deficit for fiscal 2017; however, if these methods prove to be insufficient and if management fails to take appropriate and timely action to rectify the issue, we could also lower the rating further," said S&P Global Ratings credit analyst Belle Wu. "In contrast, if the district were to restore and maintain structural balance and sustain positive budget performance, building reserves to, what we consider, at least, adequate levels, we could revise the outlook to stable."

S&P Global Ratings does not rate any unlimited-tax GO debt of the district. The district's full-faith-and-credit-GO pledge, payable from ad valorem taxes levied on all taxable property in the district, subject to statutory limitations of the Act 1 Index, secures the limited-tax GO debt. The Act 1 Index under Pennsylvania commonwealth statute restricts a district's ability to raise the tax levy higher than a certain index, which the Pennsylvania Department of Education determines.

The district intends to use series 2016A and 2016B bond proceeds for various capital purposes.