Fitch: Pressures May Offset Funding Growth for California School Districts

SAN FRANCISCO--()--California school districts (districts) are experiencing an improving financial environment but they will need to address numerous pressures that will offset a significant portion of projected funding growth, according to a Fitch Ratings report.

'Districts are benefiting from a third year of programmatic funding gains. However, budgetary pressures haven't let up. Districts must contend with a multi-year program of pension contribution increases, the scheduled expiration of temporary sales and personal income taxes in fiscal years 2017 and 2019, and pent-up wage, service level, and capital pressures,' said Scott Monroe, Director with Fitch Ratings.

Funding gains are facilitated by rising state revenues and the 2012 passage of temporary sales and personal income tax hikes, which the state is directing towards funding deferral pay-downs and the implementation of the local control funding formula (LCFF).

Until LCFF is fully implemented, revenue growth rates will vary significantly among individual districts as the state directs most new revenues to districts with high concentrations of targeted students.

Fitch views CalSTRS funding reform as positive. However, the multi-year program, if enacted as currently scheduled, would raise district contribution rates by a cumulative 131% over seven years and absorb a significant portion of districts' budgetary resources for decades.

The state ballot initiative Proposition 2 would strengthen the existing rainy day fund and create a new school funding reserve, the so-called Proposition 98 reserve. Although the reserve is intended to lower future Proposition 98 funding volatility, there are structural weaknesses that cast doubt on its practical effectiveness.

For more information, a special report titled 'Fitch Cautious on California School Districts' is available on the Fitch Ratings web site at www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Fitch Cautious on California School Districts (Solid Funding Trends Currently Balanced Against Mounting Budgetary Pressures)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=782948

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Contacts

Fitch Ratings
Primary Analyst
Scott Monroe
Director
+1-415-732-5618
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson
Director
+1-415-732-7577
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Scott Monroe
Director
+1-415-732-5618
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson
Director
+1-415-732-7577
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com