Dive Brief:
- Moody’s Investors Service downgraded 47 of Michigan's 206 school districts this week, which means that the schools will now face higher fees when borrowing money.
- Even more downgrades are expected to come in 2016, according to the Detroit Free Press, with 150 Michigan districts downgraded since 2009.
- Despite the downgrades, Moody’s found that another 41 out of 58 districts with deficits “improved or eliminated" those debts during the most recent fiscal year.
Dive Insight:
Declining student enrollment, “an increase in unfunded pension liabilities,” and “a lack of flexibility to raise revenues” combine to devastate general funds for schools, the Moody's report stated. Further, the report noted that the state's per-pupil funding has remained largely stagnant since 2009, meaning that it hasn’t kept up with the average annual rate of inflation.
Around the country, numerous districts have faced similar credit and ratings issues as budgets continue to seize in Ohio, Wisconsin, Pennsylvania, and other states. In Kansas, Moody's has also expressed a negative opinion on the state's workaround solution to its budgetary woes, "theorizing" that a repeal of its K-12 funding model would put some districts at a disadvantage by failing to account for enrollment growth. Kansas, however, has not been downgraded.
Charter schools have contributed to a drop in traditional public school enrollment, with Michigan in particular seeing a reported 12% decrease in enrollment blamed on charters.