Moody’s Report: HB 7069 Could Result in Credit Downgrade for School Districts

Image of calculator, pen and financial reportsStable credit ratings for the School District of Palm Beach County and other large school districts could be at risk because of a new state law requiring public school districts to share capital budget dollars with privately operated charter schools, according to an analysis released Friday by Moody’s Investors Service.

House Bill 7069 was signed into law by Governor Rick Scott on June 15. As part of that legislation, which takes effect July 1, school districts throughout Florida are now required to give privately operated charter schools a portion of the tax money set aside for capital expenses – which covers everything from construction, building repairs and maintenance to the purchase of classroom technology and school buses.

The estimated fiscal impact of HB 7069 to the School District’s capital budget is $10.6 million in Fiscal Year 2018, and more than $230 million in the next 10 years.

The School District of Palm Beach County currently has an Aa2 stable bond rating, among the highest for school districts in the state. The Moody’s report stated that “the mandate [of HB 7069] is credit negative for school districts with significant charter enrollment because they will have to transfer revenues that were previously earmarked for capital projects at traditional schools to charters within their district.”

Moody’s is one of the nation’s largest credit rating agencies. Moody’s evaluates the stability of bonds and other debt issued by government agencies, including school districts, and issues ratings that are used by potential investors. The School District of Palm Beach County’s long-term general obligation bonds and long-term certificates of participation have stable ratings from all three major credit rating agencies.

“This independent analysis by Moody’s highlights one of our real concerns with this new law – the financial effect that it will have on our District, and on school districts throughout Florida,” said Dr. Robert Avossa, Palm Beach County Schools Superintendent.

The Moody’s analysis noted that this is the Florida Legislature’s third reduction in school districts’ capital millage rates since 2008. The School District’s capital budget has been reduced by $865 million since 2008.

“As capital revenues follow students to charters, traditional schools’ ability to cut capital expenditures will be tempered by aging infrastructure and the need to attract and retain students,” the Moody’s analysis stated.

The School District of Palm Beach County is Florida’s fifth-largest school district, with more than 195,000 students enrolled in pre-kindergarten through grade 12. Charter school enrollment accounts for approximately 11 percent of that total.

According to the Moody’s analysis, “continued charter enrollment growth and the associated loss in capital funding for traditional schools may lead to a self-reinforcing cycle of decreased traditional public school enrollment and decreased revenues available for capital planning under the new legislation.”

Read the full Moody’s report here.