BRADENTON, Fla. — A Georgia Supreme Court ruling that Atlanta's charter schools have no legal obligation to share in the Atlanta Independent School System's pension costs is a credit negative for school districts statewide, Moody's Investors Service said Monday.
"The $2.8 million of revenue that [Atlanta Independent] will return to the charter schools as a result of the ruling is not a large amount for the school system, but the dispute underscores the larger issue of charter school funding in Georgia and the negative implications for public school districts," Moody's analyst Michael D'Arcy wrote in a report.
Atlanta Public Schools, as the system is also known, had deducted $2.8 million from its payments to charter schools in 2012 to help fund a $38.6 million annual pension contribution payment to one of its two retirement plans, according to D'Arcy. On Sept. 23, the state Supreme Court ruled that Atlanta's charter schools don't have to share in APS's annual pension costs because their employees do not participate in the district's retirement plans.
"The ruling in favor of the charter schools will result in APS having to cover its full pension costs from its own revenue base, net of its payments to the charter schools," D'Arcy said. "The district's revenue base has shrunk in recent years as a result of state aid cutbacks, declining property tax revenues, and the end of the federal stimulus program."
As a result, less money has been available for APS to cover its pension contributions, which accounted for 11.9% of total district expenditures in fiscal 2012, he said. About 10% of Atlanta's 49,500 public school students were enrolled in charter schools in the 2011-12 school year. In fiscal 2012, APS had 12 charter schools, and this year there are 14.
APS finance officials could not immediately be reached for comment.
Louis Erste, director of the state Charter Schools Division for the Georgia Department of Education, said the state Supreme Court ruling only affected APS — and no other public school district — because state law requires that all charter schools participate in the Georgia Teachers Retirement System on their own.
Atlanta attempted to spread costs of its "legacy" pension underfunding to charters that had not participated in the APS's plans, said Erste, who oversees 112 charter schools statewide this year. There were 108 last year.
"Given this APS-only scenario, it is therefore an overreaching and overly cautious statement by Moody's that, 'the ruling is a credit negative for other K-12 public school districts in the state with an increasing charter school presence, because it bars districts from offloading a portion of their legacy costs onto charter schools,' " he said.
"Only APS made an ill-considered decision in 2012 to suddenly deviate from the law on how to fund charter schools when it began to 'offload a portion of their legacy costs onto charter schools' by illegally subtracting funds from their charter schools' base funding to cover APS's pension funding mistakes of the past," Erste said.
The Atlanta Independent School System has about $17.4 million of general obligation bonds issued on its behalf by the city of Atlanta, according to the district's 2012 audit. In 2006, the district created the nonprofit Education Reform Success Inc. to issue certificates of participation for certain capital needs. About $8.4 million of unrated, privately placed COPs issued in 2006 are outstanding.
In 2011, Education Reform Success also issued $72.46 million of federally taxable, qualified school construction COPs, and $31.95 million of tax exempt COPs, which were outstanding at the end of fiscal 2012. They are rated Aa3 by Moody's and AA-by Standard & Poor's.
Like most public schools in Georgia, Atlanta funds capital needs primarily from special local option sales tax revenues, according to S&P.