LOS ANGELES — A state report that shows a decline in the number of fiscally stressed California schools is a credit positive, according to Moody's Investors Service.

The decline primarily reflects improved state funding, driven by a strengthening economy, Moody's analyst Christian Ward wrote in the March 12 report.

Improved district cash flow from the elimination of state payment deferrals also has helped California's K-12 and community college funding approach pre-recessionary levels, she wrote.

State funding had dropped from a high of $56.6 billion in 2008 to $47.2 billion in 2012, Ward wrote, but that figure could rise to $67.5 billion through the governor's budget proposal for fiscal 2015-16.

"Given the governor's budget proposal, we expect that by the end of fiscal 2016 the state will have only $1.9 billion remaining in unpaid minimum guaranteed funding," Ward wrote.

The balance of deferrals, as an unpaid liability to schools from the state since fiscal 2008, could be paid off by June 2015 if revenue projections in May hold strong, she wrote.

The state Department of Education reported on March 4 that the number of financially-challenged school districts declined by 4.2% to 43 this fiscal year from 49 a year earlier.

The DOE gives troubled school districts either a designation of "negative," if current projections show the district is not likely to meet its financial obligations in the current fiscal year, or "qualified" if it seems likely the school district will not meet its financial obligations for two years after that without corrective action.

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