LOS ANGELES — Los Angeles teachers are on strike, but the bond ratings of the nation's second-biggest school district aren't likely to change.
Three rating agencies have said they don't see an immediate rating impact from the strike, though all say the labor action underscores long term problems at Los Angeles Unified School District.
The district’s teachers went on strike Monday.
Fitch Ratings downgraded LAUSD’s issuer default rating to A from A-plus in September and assigned a negative outlook at the time. It said Monday it doesn't expect to take strike-related rating action.
Moody’s Investors Service rates the school district Aa2 with a negative outlook. The strike "is unlikely to have a significant financial impact on the district," it wrote Wednesday.
"The parties' inability to reach an agreement adds to lingering challenges that are credit negative," Moody's wrote. "These challenges include declining enrollment, rising pension costs and slower state aid growth."
Kroll Bond Rating Agency rates LAUSD general obligation bonds AA-plus with a stable outlook.
"KBRA believes that bondholders of the LAUSD’s voter-approved Dedicated Unlimited Ad Valorem Property Tax Bonds will not be adversely impacted," it wrote in September, anticipating a strike. Property taxes that back the bonds are collected by the county tax collector, and the county treasurer is paying agent, segregating the money from the district's operations.
LAUSD has been struggling financially for several years, partly because competition from charter schools has resulted in an enrollment drop and decreased state funding.
The district receives money from the state based on daily student attendance. Schools will remain open and the district is encouraging its more than 600,000 students to attend, but many parents may not see the value in sending their children, Fitch said. The school district has hired substitutes to replace the teachers, but news reports have placed that number at around 4,000, compared to the 30,000 teachers now on strike.
Fitch said its September downgrade took into consideration the ongoing labor dispute and that the issues raised in the negotiations would likely result in some erosion of the district’s practical ability to control spending, regardless of whether a strike occurred.
The last United Teachers Los Angeles strike in 1989 lasted for nine days.
The district projected that it could accrue operating deficits of $236.2 million in fiscal year 2020 and another $169.4 million fiscal year 2020, according to KBRA. The teachers’ proposal would add an extra $813 million each year to the district’s deficit, district officials said.
The district has offered a 6% raise, with half retroactive to July 1, 2017, and the additional 3% increase starting July 1. The union wants a 6.5% raise retroactive to July 2016, smaller class sizes, a full-time nurse for every district school and more special education teachers, according to its 70-page bargaining proposal.
UTLA also wants the district to restrict the growth of charter schools, but Fitch warned in its report that the strike could result in more parents choosing an alternative to LAUSD.
KBRA also expressed confidence in California’s structure for dealing with school districts in financial distress in its September report.
“In the unlikely event that the district’s financial health becomes a concern, the California Department of Education’s County Offices of Education have a robust mechanism to step in and intervene before the district heads too far down a path that leads to fiscal distress,” KBRA analysts wrote.
S&P Global Ratings has not rated new LAUSD GO bonds since 2015, according to official statements posted on the Municipal Securities Rulemaking Board's EMMA website. It assigned its AA-minus rating.
