BRADENTON, Fla. — Florida school districts face rising negative fiscal and credit pressures stemming from the weak economy, funding uncertainties, and property tax reform, Moody's Investors Service said in a special report last week.
So far most districts have coped with revenue uncertainties and no negative rating or outlook changes have been made by Moody's on Florida school districts' general obligation, issuer, or certificates of participation ratings in over a year. The exception is a negative outlook assigned in October 2008 to the Miami-Dade County School Board due to reduced operating flexibility.
But Florida school districts are faced with a confluence of issues that are placing increased pressure on budgets and financial resources, according to the report by Moody's analyst John Incorvaia.
Florida's severely weakened housing market has reduced statewide sales tax receipts and negatively impacted enrollment levels and tax base growth, reducing state and local financial resources, Incorvaia said.
School districts are also burdened with constitutional property tax reform that limited tax-base growth. There are also continued revenue challenges from the implementation of a multi-year voter-approved class-size reduction program.
Capital programs are also being strained by the slower growth in property tax revenue and the ongoing reduction in capital outlay millage that supports certificate of participation obligations, the primary financing vehicle for Florida school capital needs.
Moody's rates more than $12 billion in school district COPs statewide issued by 25 of the state's 67 school districts, which are coterminous with the county they are located in.
In another sign of increasing stress for districts, state economists Nov. 30 projected the statewide school taxable value — the total taxable property value in all school districts — this Jan. 1 would be $1.47 trillion, which is $51.5 billion or 3.4% lower than their last estimate in July. The projection represents a 9.5% decrease in taxable value for school districts in the coming year compared to the 2009 tax roll.
Public schools also receive state funding, which has dwindled for several years because of declining state revenues. Since Florida has no state income tax, its budget is largely reliant on a volatile statewide sales tax and other fees in addition to federal funding.
In recent years, Florida's revenues have declined year-over-year from a high of $29.55 billion in fiscal 2005 to $26 billion in fiscal 2009. However, revenues are projected to increase by 8.32%, to $28.16 billion, this fiscal year, according to a state Division of Bond Finance report this month.
As a result of declining revenues, lawmakers reduced state aid and shifted some of the funding burden to the school districts by allowing them to fund operations from a portion of a millage levy designed to fund capital needs. Florida also allowed school districts to use an additional 0.25 millage rate. That millage authorization expires after next year unless its continuation is approved by voters.
In fiscal 2010, the state education budget was offset by federal stimulus funding that no longer will be available after fiscal 2011.
School districts have resorted to significant expense-reduction strategies, according to Incorvaia, including cutting positions, freezes on purchasing and travel, eliminating programs, and adjusting school class schedules. Districts have also used carry-forward funds and reserves to maintain financial balance.
Most Florida school districts have had to re-prioritize and drastically reduce their capital programs, Incorvaia said.
As of Dec. 22, local school bond sales this year totaled $1.1 billion compared to $1.9 billion for the same period in 2008, according to Thomson Reuters.
"Moody's expects that despite challenges school districts will manage effectively through fiscal 2011," Incorvaia said. "However, ongoing capital and operational funding uncertainties could result in the weakening of financial operations for some Florida school districts."
He said financial challenges are likely to heighten in fiscal 2012 when the temporary millage authorization ends along with some federal funding programs.
"Those districts that have traditionally exhibited strong management and financial controls will likely fare better than those who have only begun to cut costs and modify programs, although in the absence of additional revenue or revenue raising authority most will be forced to make very difficult budgetary adjustments," Incorvaia said.
Moody's expects that a recent state statute requiring school districts to maintain a minimum unreserved general fund balance between 2% and 3%, or else face the potential for state oversight, will be helpful in focusing schools on developing a more balanced and long-term approach to dealing with operating and capital pressures, Incorvaia said.