LOS ANGELES — California Gov. Jerry Brown's proposed 2015-16 budget is mostly positive for school districts, Fitch Ratings said Jan. 15.
Analyst Scott Monroe cited Brown's proposal to spend $1 billion to pay down the last of the funding deferrals districts had to absorb during the recession times among the positive factors.
If the budget is enacted as proposed, funding under the state's Proposition 98 formula would grow 7.9% to $65.7 billion in fiscal 2016 from $60.9 billion in fiscal 2015, Monroe said. The budget would also retroactively increase fiscal 2015 funding by $2.3 billion to $63.2 billion.
Despite a substantial 39% funding gain from trough levels reached in fiscal 2012 of $47.3 billion, "many districts have struggled to match spending growth with rising revenues, and Fitch believes this dynamic will continue into the foreseeable future given increased retiree costs and substantial pent-up pressure for wage hikes and service level restorations," according to the report.
The budget is consistent with Brown's move last year to shift capital spending from the state to local school districts, Fitch said. Analysts pointed to Brown's move to block legislation for a $4.3 billion school bond last year that had received broad support in the legislature. His intent is to shift spending to the local level and create a much smaller program targeted to districts that demonstrate need.
Brown's budget "contemplates limited circumstances that would necessitate future state support, including districts with such low assessed value that they cannot issue a sufficient amount of GO debt to meet their capital needs," according to Fitch.
Fitch said the state's reduced role may be mitigated by enhancements proposed to local capital financing tools, which include raising caps on districts general obligation bond measure tax rates.
Fitch also weighed in on proposed redevelopment agency legislation saying it would clarify and refine ambiguities in the bills that dissolved the state's redevelopment agencies, and streamline administrative processes. Fitch said it "views this as neutral to slightly positive for credit quality, as current administrative processes, while cumbersome, have enabled RDAs to pay their tax allocation bond debt service on time and in full."
Fitch said it views the governor's proposed budget as credit neutral for counties.
