Wednesday, October 16, 2013

Moody's Investment Research Says Charter Schools Put School Districts' Credit Rating at Risk

In Charter Schools, Vouchers, and the Public Good, I raised the problem of some districts' continuing financial viability with the growth of charter schools (along with several other issues). I don't suggest that charters are a per se threat to public schools, but focus on the paradigm cases of a small rural district that operates one middle school and one high school.  Opening one charter school can jeopardize the fiscal stability of the district and create dilemmas of conscious for families.  The same type of problem can occur in large school districts, but the growth of charters has to been rather significant.

A new report by Moody's indicates that some districts have already reached this point and others may do so in the future:

The dramatic rise in charter school enrollments over the past decade is likely to create negative credit pressure on school districts in economically weak urban areas. . . . Charter schools tend to proliferate in areas where school districts already show a degree of underlying economic and demographic stress. . . .

"While the vast majority of traditional public districts are managing through the rise of charter schools without a negative credit impact, a small but growing number face financial stress due to the movement of students to charters.". . .

Charter schools can pull students and revenues away from districts faster than the districts can reduce their costs, says Moody's. As some of these districts trim costs to balance out declining revenues, cuts in programs and services will further drive students to seek alternative institutions including charter schools.

Many older, urban areas that have experienced population and tax base losses, creating stress for their local school districts, have also been areas where charter schools have proliferated, says Moody's. Among the cities where over a fifth of the students are enrolled in charter schools are Cleveland, Detroit, Kansas City, St. Louis, and Washington, D.C. Nationwide about one in 20 students is in a charter school.

One of the four risk factors Moody's identifies as making a school district vulnerable to charter school growth is that the school district is already financially pressured and grappling with weak demographics.

A second factor is having a limited ability to adjust operations in response to a loss of enrolment to charter schools. . . .

A third risk factor for a school district is being in a state with a statutory framework promoting a high degree of educational choice and has a relatively liberal approval process for new charters and few limits on their growth, as well as generous funding.

A final risk factor is when a school district is not integrated into a healthier local government, as such integration can lead to greater diversity in revenues and more flexibility in balance sheets, positioning the district to better handle operating and financial changes.

In other words, the report systematically substantiates the point I had tried to make through anecdote and theory.   

 

http://lawprofessors.typepad.com/education_law/2013/10/moodys-investment-research-says-charter-schools-put-school-districts-credit-rating-at-risk.html

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