BRADENTON, Fla. - A sweeping education bill signed by Florida Gov. Rick Scott that requires public schools to share capital funding with charter schools is credit negative, according to Moody's Investors Service.

Scott signed House Bill 7069 into law June 15 at a Catholic school in Orlando, allocating $419 million to the measure as part of the state’s budget process.

“Think about it, our traditional public schools, they get better when they compete,” Florida Gov. Rick Scott said June 15, after signing an education reform bill at Morning Star Catholic School in Orlando.
“Think about it, our traditional public schools, they get better when they compete,” Florida Gov. Rick Scott said June 15, after signing an education reform bill at Morning Star Catholic School in Orlando. Florida governor's office

HB 7069 requires that the state’s 67 school districts share funds generated by a 1.5 mill property tax with charter schools. Charter schools are nonprofit, privately operated facilities that operate independently of local school districts, while receiving operating funds on a per-pupil basis. They are largely exempt from much of the Florida education code that applies to traditional public schools.

“The mandate is credit negative for school districts with significant charter enrollment because they will have to transfer revenues that were previously earmarked for capital projects at traditional schools to charters within their district,” Moody’s analyst Gabriel Agostini said in a comment on the legislation Wednesday.

While many public school districts have issued bonds backed by the tax, the new law requires that debt service be paid before any remaining money from the property tax is shared with charter schools.

Agostini said the mandate to share the tax revenue marks the third reduction in the capital millage rate since 2008, and continued charter growth under the new formula will increasingly pressure the capital budgets of traditional schools.

“As capital revenues follow students to charters, traditional schools’ ability to cut capital expenditures will be tempered by aging infrastructure and the need to attract and retain students,” he said. “The majority of Florida’s largest school districts have a sizeable proportion of students enrolled in charters and will be negatively affected by the new reform.”

Miami-Dade County and Broward County school districts have the largest percentage of students enrolled in charters schools at 17.6% and 16.9%, respectively. About 270,000 Florida students attend charters, according to the State Department of Education.

If HB 7069 had been in effect in fiscal 2017, the required capital revenue transfer to charter schools would have been 5.7% and 4.3% of each district’s 1.5 mill capital budget after the payment of debt service, Moody’s said.

“In the event that the state decided not to appropriate capital outlay funds to charters, school districts would have to fill the funding gap,” Agostini said. “As a result, the funding formula leaves school districts exposed to the risk that state capital appropriation to charter schools will decline or cease.”

The Florida legislature appropriated $50 million separately for charter capital outlay in its fiscal 2018 budget, down from $75 million in fiscal 2017, he said, adding that school districts will have to share roughly $25 million more with eligible charters in fiscal 2018 after paying debt service.

The legislation stipulates that only charters eligible for state capital outlay revenue receive their portion of the capital millage collected by school districts.

In fiscal 2017, 84% of the state’s 652 charter schools qualified for state funding.

“Rapid growth in charter enrollment across the state will further compress funds available for traditional school capital outlay in the next one to two years,” Agostini said.

HB 7069 is a 274-page bill that was passed during the final days of the Legislature’s session, limiting the time for public review. It contains portions of 23 related bills, according to a House analysis.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.