BRADENTON, Fla. - A landmark South Carolina Supreme Court ruling that found the state failed to provide a "minimally adequate" education to poor children is credit positive for low-income school districts, Moody's Investors Service said Thursday.
The state's high court essentially settled the gist of 21-year-old case on Nov. 12 in determining that the state's school funding formula is "fractured," and violates the state's constitution.
The court said state lawmakers and school officials should "lay aside blame," and propose remedies to the violation. The lawsuit remains open until the state resolves the funding disparity.
"The ruling is credit positive because it will increase state aid to low-income districts that are largely located in rural areas," said Moody's analyst Robert Weber.
In South Carolina, the state currently determines school funding using an index of taxpaying ability, which is based on a district's full market value of taxable real estate relative to other districts.
"The funding formula is based more on the district's size than its wealth," Weber said. "Through an analysis of the South Carolina districts for which we have updated financial information, the current funding formula shows very little preference toward high-poverty, low-income districts."
The lack of correlation between poverty rates and state aid in South Carolina is a stark difference from how other states distribute aid to school districts, said Moody's.
As examples, Moody's said state school formulas in Texas and New York funnel greater funding to low-income districts than wealthier districts.
The formulas in these states place a heavier burden on wealthier districts to support operations through their own property taxes, and provide greater state aid to districts for which a property tax increase would place an outsize burden on taxpayers owing to high poverty rates and low income levels, Moody's said.
The South Carolina Supreme Court did not determine what an adequate funding level would be, but asked the state to work on a solution.
Moody's said there are three ways the state can reallocate funding: change the formula and allocate more state funding to high poverty, low-income districts; overhaul the state-aide formula; or fully fund the base student cost requirement and allocate more revenue to school districts statewide.
Since 2008, and in 11 of the past 14 years, the state has failed to meet its statutory requirement to fund the base student cost - a complicated formula that determines how much the state must spend per student, said Moody's. In recent years, the base cost has been underfunded so the state could balance its budget.
"Although it is unclear at this time which of these options may be implemented by the state, a more equitable distribution of state aid would be credit positive for low-income districts," Weber said.
