A lower court ruling that the state school funding formula is unconstitutionally flawed could lead to stronger credit ratings for local school districts, Fitch Ratings said last week.
The decision by state District Judge John Dietz may result in increased funding from the state and additional financial flexibility for more than 1,000 school districts in Texas, said Scott Murray, a senior director in Fitch’s Austin office.
Dietz ruled from the bench on Feb. 5 that the system used by Texas to finance public schools is unconstitutionally inadequate, insufficient, ineffective and arbitrary. A written opinion is expected within weeks.
Murray said he expects the ruling will be appealed directly to the Texas Supreme Court.
“If the Supreme Court upholds the lower court’s decision, it will direct the state Legislature to make revisions to the system to restore its constitutionality,” Murray said.
“These changes likely will address funding levels in general, property tax rates, and the distribution of funding among wealthy and less prosperous districts,” he added.
Any increase in state funding would be a positive credit consideration for the local districts, Murray said.
If the current funding system is upheld in the appeal, it would not affect the credits Fitch rates, he said.