LOS ANGELES — A California Superior Court ruling declaring existing teacher tenure and seniority laws unconstitutional is a credit positive for school districts, according to Moody's Investors Service.
"Greater employment flexibility will lead to increased budgetary flexibility," Moody's analysts wrote.
The ruling would position urban districts such as the Los Angeles Unified School District and the Oakland Unified School District to better compete with the growing number of independent charter schools, according to the rating agency.
The ruling would overturn statutes long restricting how California public school districts hire and fire teachers. Plaintiffs argued those rules deprived students of the right to basic equality of education opportunity.
The California Teachers Association and the California Federation of Teachers have indicated their intention to appeal the decision.
If the ruling stands, school districts would have greater budgetary flexibility, allowing them to better control labor costs, their leading expense, Moody's analysts said. Better labor cost control would help them better adjust if the state reduces aid, as it did during the recession.
Moody's declaration of "credit positive" or "credit negative" does not connote a rating or outlook change, but is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer, according to the rating agency.
Moody's follows Standard & Poor's in issuing a credit outlook on the report. S&P said in a June 11 report that the ruling is expected to have neutral to positive credit implications.