SAN FRANCISCO – Fitch Ratings said potential “trigger” cuts in California could result in more downgrades over the next few years as school districts would be forced to deal with less funding.
The state budget incorporated cuts that would be triggered if voters Tuesday reject Gov. Jerry Brown's Proposition 30 tax increase measure.
The ratings agency said in the report Thursday that the downgrades would not be immediate and widespread as school districts will take various actions to deal with the varying shortfalls.
“While many districts are well-positioned to weather trigger cuts in 2013, the longer-term financial implications are troubling,” Scott Monroe, a director in Fitch's public finance group, said in the report. “Years of expenditure cuts have reduced districts' financial flexibility, exacerbating the situation.”
The failure of Proposition 30 would trigger midyear state funding cuts.
Monroe said it is possible that school boards and unions could battle the potential cuts.
Fitch said the key for school districts to able to maintain fiscal stability will be their ability to deal with rising benefit costs and “pent up wage pressures.”
Since January 2010, 18% of California school districts rated by Fitch have been downgraded and 19% have negative outlooks.
Fitch said it has an AA-minus average rating on California school district unlimited tax general obligation bonds, which is one notch below the average for unlimited tax GOs in the tax-backed sector.