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Moody’s Investors says $1B for K-12 education is ‘credit positive’ for local schools

Post by Brad Shannon / The Olympian on July 15, 2013 at 7:07 pm with No Comments »
July 15, 2013 7:08 pm
More than 1,000 teachers and advocates with the Washington Education Association rally in Olympia in April for increased school funding. / Photo by Tony Overman-The Olympian
More than 1,000 teachers and advocates with the Washington Education Association rally in Olympia in April for increased school funding for pay and class sizes, but lawmakers had different priorities for their investments. / Photo by Tony Overman-The Olympian

The recent legislative session did nothing to lift a “negative outlook” on Washington state government’s fairly good credit rating. But the Legislature’s decision to put nearly $1 billion of new money for K-12 schools may help some local school districts on a case-by-case basis.

Moody’s Investor Service, the national ratings agency, says the $1 billion for K-12 was a “credit positive” event that gives local school districts “some budgetary relief and increased financial flexibility” going forward. A note on Washington’s situation was released last Thursday in Moody’s Weekly Credit Outlook for Public Finance.

David Jacobson, a communications strategist in the firm’s public finance group, said it did not have an effect on the state’s finances, which are rated Aa1, the second-highest rung, since 1997.

“The negative outlook, which connotes downward pressure on that rating, was assigned in January 2012 and the rating and outlook was affirmed this past January when the state issued new general obligation bonds,” Jacobson said in an email response to The Olympian last week. “The negative outlook is due to continuing budget gaps that have challenged the state for the last couple of years, modest budget reserves, and high fixed costs. We continually monitor our ratings and outlook but there is no fixed time frame for a rating change at this point.”

In the rating agency’s note on Washington, it said the budget for 2013-15 boosts biennial funding for public schools by 9.6 percent over the previous budget cycle, effective July 1:

The increase is credit positive for school districts in the state, providing them some budgetary relief and increased financial flexibility over the next four years. Washington Governor Jay Inslee has also proposed increasing funding by $3.0 and $3.8 billion over the following two budget cycles, respectively.

The increased funding is in response to a 2012 State Supreme Court Case (McCleary v. State) which ruled that the state was not fulfilling its constitutional requirement to fully fund basic education. Under the ruling, the state has until 2018 to increase public school funding by $6.8 billion. Washington has confronted several years of sizable budget gaps over the recent recession and demonstrated its willingness to cut spending and raise revenues to balance its budget. While the court’s decision increases budget pressure, we expect that the state will address any budget gaps that emerge, as it has in the past.

On average, school districts rely on state funding for approximately 65% of their general fund revenues, down from 70% in 2009 and 78% in 1992. More than half of the new funds will be dedicated to restoring expenditures that district officials have had to eliminate or reduce due to funding cuts, including spending cuts to student transportation services, supplies, full-day kindergarten, and utilities. The $1 billion increase brings state funding for school districts to $14.8 billion or 45.3% of the state’s general fund biennial expenditures. The increase amounts to an additional $500 per student in fiscal 2014 and another $370 in fiscal 2015, the largest increase since the 2005-07 biennium budget but less than the $3.4 billion anticipated subsequent the McCleary case.

State education funding to districts in the 2009-2011 biennium increased by 0.8% after increases of 10.4% and 8.5% in the previous two budgets. 

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