LOS ANGELES — California's projected growth in education funding is a credit positive for the state's schools and community colleges, Moody's Investors Service said.

The growth in education funding will ameliorate the impact of increased pensions costs, according to Stanley Ellicott, a Moody's Associate analyst.

Moody's cited a Nov. 19 state Legislative Analyst's Office report that projected annual revenue growth for public education through fiscal 2020.

Statewide revenue is forecast to grow a cumulative $8 billion to $77.5 billion through fiscal 2019-20, according to the LAO's report.

The LAO projects a $2.3 billion or 3.3% increase in the fiscal 2017 minimum funding guarantee to schools, increasing funding to $71.4 billion from $69.1 billion and providing roughly $370 in additional funding per student, Ellicott said.

The LAO produces revenue estimates for state lawmakers ahead of the governor's budget proposal, which is typically released in the first two weeks of January.

The positive forecast for schools comes after several years of recession-led volatility marked by state funding cuts and deferrals, Ellicott said.

"Revenue growth will help districts mitigate the financial pressure of escalating pension burdens," Ellicott wrote.

State law requires districts to increase contributions to the California State Teachers' Retirement System to 18.1% of covered payroll in fiscal 2020 from 10.7% in fiscal 2016. The cumulative rate increases total $3 billion, or almost 40% of the LAO's projected revenue growth. Pension obligations will take up an even greater share of revenue as districts face similar rate increases to the California Public Employees' Retirement System.

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.