SAN FRANCISCO — Mid-year cuts to California’s budget may hit credit ratings for school districts that are dependent on state funding, Fitch Ratings said in report Thursday.
The agency said it plans to review state school districts with negative rating outlooks if the state ends up implementing a round of spending cuts in the current budget because revenues have come in below forecasts.
“The implementation of mid-year cuts will have little effect on the credit of the state or the University of California,” Fitch analyst Douglas Offerman said in the report. “However, credit risks are potentially more significant for California-area school districts rated by Fitch.”
According to the state’s Legislative Analyst’s Office forecast, California will likely be forced to impose a first tier of “trigger” cuts and three-fourths of a second tier of cuts because revenues could come in short.
The LAO said combined cuts would total $2 billion with $1.4 billion mainly hitting K-12 schools. The state budget anticipates districts would reduce the school year by seven days to make up the difference, but Fitch said schools have expressed concern about getting the labor concessions necessary to shorten the year.
“The state’s weak and uncertain budget situation has long been a factor in Fitch’s school district analysis,” the report said.
Fitch said since the start of 2010 it has downgraded the ratings for 14% of the California school districts it rates, while 22% have negative rating outlooks.
But the cuts also depend on a forecast from the Department of Finance that is due by Dec. 15, which is also likely to show cuts are needed.
“The budget the governor signed recognized that economic uncertainty could force the trigger cuts to take effect. Some level of trigger cuts will likely occur, but the exact amount will be known in December,” California finance director Ana Matosantos said in a statement Wednesday.
The nonpartisan LAO said the impact of the current-year revenue shortfall, coupled with a possible $10 billion operating deficit in the general fund for fiscal 2013, could result in a $12.8 billion deficit next fiscal year. Its forecast assumes no inflation increases and that budget cuts remain in place.
