SAN FRANCISCO - A Los Angeles trial judge's ruling that teacher tenure laws are unconstitutional is expected to have neutral to positive credit implications for California school districts, according to Standard & Poor's.
Los Angeles County Superior Court Judge Rolf Treu ruled Tuesday that California laws governing teacher tenure, firing and layoffs violate students' constitutional right to education equality.
He noted that the current laws protect poorly performing teachers, harm students and disproportionately affect poor and minority pupils.
The final judgment will not be available for 30 days, and teachers' unions, the defendants in the case, have said they will appeal.
"But if it stands, the ruling could allow districts more financial flexibility, which could improve long-term rating characteristics," Standard & Poor's analysts said on June 11.
According to analysts, approximately 75% to 80% of school district spending is on salaries and benefits. This judgment could allow schools more flexibility in their largest expenditure line item.
However, Standard & Poor's said any financial benefits would likely be embedded within a district's broader financial management and performance.
While the ruling could increase management flexibility over salary and benefit costs, it's unlikely any future rating changes from the agency would be tied explicitly to the court's decision.
"In the short to medium term, we believe that the credit-strengthening effect of increased financial flexibility outweighs any potential downside," analysts said. "We do not expect to take any positive rating actions based on the ruling in the short to medium term due to the probability of a lengthy appeal process and uncertainty about the long-term credit implications of the ruling."
